JD DURKIN: Good morning, subscribers. Chris Versace and I are now back to help answer just a few of your biggest questions of the week. Let's start first with a broader look at the economy itself.
Chris, we have one member wondering if government stimulation, namely the infrastructure bill and the Chips Act, could make it more difficult for the Federal Reserve to lower inflation. What are your thoughts there?
CHRIS VERSACE: That's a great question. And I say that because one of the things that we've seen is a dart of construction workers. And of course, the Fed is watching wage inflation among the services inflation and other indicators rather closely. So at the margin, could this potentially keep wage inflation higher than expected for longer? It certainly could.
However, I think that the real point here is as we ramp throughout the coming quarters, both in 2023 and into 2024, that spending on those projects is going to be a very positive tailwind for the overall economy and a number of positions on the portfolio. I think that's the more critical point to look at.
Outside of those particular drivers, I also think that we're going to continue to monitor the services side of the economy. More importantly, not necessarily having a lot to do with this part that we're talking about now. That is going to be the key point I think the Fed continues to focus on more so than this type of construction wage inflation.
JD DURKIN: Staying on Capitol Hill, Chris. Could spending cuts tied to the debt ceiling debate impact any of the stocks currently benefiting from infrastructure spending?
CHRIS VERSACE: So, you know, that money appears to be rather locked and loaded. So I'm not so much concerned about that. I think what's a little more interesting to watch on the debt ceiling debate though, is the initial 2024 White House Budget where they've actually looked for more spending on defense. If I had to get concerned about any one area, that would be it and what it potentially means for our shares of Lockheed Martin.
But as I explained to members in a note last week, given what we're seeing both in Asia-Pacific, but also with the Russia-Ukraine war, you know, tensions around the globe continue to mount. And I do think that we're likely to see more favorable spending for defense. The real question is, incrementally, how does it stack up against 2023? And that we'll only learn in the coming months.
But remember, too, that when we look at Lockheed Martin, it's not just the United States of America that it serves. It is one of the largest defense contractors out there. They have countries across the globe looking for its wares. We've been sharing those thoughts with members, so I wouldn't necessarily get too caught up if defense spending in the US for 2024 is slightly lower, slightly higher.
The reality is that the company has a multiyear backlog, a lot of visibility. And when the market gets a little uncertain, like we're seeing now, it's a great customer to have in the form of the US government. And that's going to more likely than not attract more investors to Lockheed Martin than not.
JD DURKIN: And we certainly are seeing that in certainty at least as of this morning. Over to the portfolio Chris, are you at all concerned with the level of long-term debt at Verizon? What are your thoughts there?
CHRIS VERSACE: When we took a look at Verizon and sized it up against AT&T, T-Mobile, and the others, there was little question that Verizon has the best balance sheet out there. And this is a great topic, though, because when we look at debt levels, we, of course, have to acknowledge what they are for what they are. What I mean by that is the absolute numbers that we see on the balance sheet.
But we also have to take a look at other metrics as to whether or not the company can handle those debt levels. That's where we start to look at EBITDA to interest to make sure that their cash flow can easily repay the debt and the debt service that's out there. And of course, with Verizon, they are the best of breed when it comes to that.
So again, not really concerned about Verizon's debt levels.
JD DURKIN: All right, let's check in on the charge point thesis. Any concern there, Chris, that it will take longer than expected to roll out enough EV charging stations? Very important.
CHRIS VERSACE: Well, you know, again, this is a long-term play for me and for the portfolio and for members. Because we know that it's going to take time for funds-- excuse me-- to flow. And we are starting to see that. Of course, we're really referring to the Biden infrastructure law here that's on the public side. But there are also private funds that are flowing as well.
So I think whether or not it's a month or two later, a quarter or two later than what we're looking at, the real question to us is, what is the outlook for 2024, 2025, 2026 as we see more EVs driving around and needing to get charged? So again, not really all that flummoxed or concerned, if you will, if we're off by a quarter. It's the long game that matters most.
JD DURKIN: All right, let's conclude things here with a little education if we can. It won't be boring, though, I promise. We spend a lot of time discussing earnings reports. But Chris, you recently put out an alert on annual reports as well. How important are things like annual reports? And what do you look for when you're reading them?
CHRIS VERSACE: So whenever we start to look at a new position or even look to update our thoughts on an existing position from the portfolio, consider a company in the bullpen, the annual reports and the 10-K's are the two must-read documents. I say that because they've taken together, they really tell us what it is that the company does. More importantly, when we review the notes and look at the segment operating disclosures, we understand where it is they really make their money, what really drives cash flow.
They also outline a number of risks that we have to keep in the back of our minds so we can pay attention to them on a go forward basis. So these are mission critical reports to read. And as they come out each and every year, what do I do?
I sit with a, well, what used to be a print stack. But now I sit in front of my monitor and I read them, really looking for what's different year to year. And what I hope to do, JD, is to continue these educational alerts with members because there are other types of filings as well, 10-Q's on a quarterly basis. But for companies that are housed outside of the US, but trade in the US markets, reports like the 20-F that are as important as annual reports and 10-K's. So a lot more to do on this, but thanks for the question.
JD DURKIN: Absolutely. So, of course, a print stack, used with a paper, actual printer. I remember those days back in the day. That's what we were all printing when we all had printers at home. OK, Chris, thanks a lot for the perspective and the context as always. Appreciate it, my friend.
CHRIS VERSACE: You got it.
JD DURKIN: Members, to those of you watching at home, please continue sending all of your questions to us. You could send them on over to aapclub@street.com. Have a great day and we'll see you next time.