The H.E.A.T. Formula

Hazmat Meets High-Tech: Profiting from CA’s Lithium Cleanup & the AI Agent Boom

January 21, 2025

The H.E.A.T. Formula is a radically different way to look at investing your portfolio.

‍H- Hedges, you should always have hedges and be agnostic as to being long or short. Bonds are not a hedge

‍E-Edges, you should always look for edges. Preferably these are edges with some sort of psychological underpinning, structural edges, or some sort of barrier to entry.

‍A-Asymmetric. Everything you do, be it trades or your overall portfolio, should be designed so that heads you win a lot, tails you lose a little.

‍T-Themes. You should always be invested in the top themes. Most everything else is just noise.

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Over the weekend news broke of a couple of new Nancy Pelosi trades—- GOOGL, NVDA, VST, and TEM. Own all four, which is cool, but TEM is interesting. Jensen talked last year about how much potential he saw with AI and healthcare. I saw Marc Andreessen on a podcast a while back and he said the biggest area of AI was going to be healthcare. TEM has been a wild ride, I’ve made a ton and lost a ton on it, net/net still positive and this morning is going to be good. Not sure I would jump in up 20ish percent, but this is a stock and an area that I am going to be talking much more about.

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Wildfire Clean Up Theme—Lithium Battery Clean Up

One of my marketing guys pointed this out to me on Friday, great to see the staff learning to look for investment themes on their own.

Lithium batteries from Tesla Inc., along with those from other carmakers, have added to the mix of toxic materials requiring specialized removal in the wake of the fires, delaying the fire victims’ return to their properties.

So I asked GPT which companies were likely to benefit the most…..

Bottom Line

  • Clean Harbors (CLH) and Heritage-Crystal Clean (HCCI) are the top publicly traded contenders for the specialized hazmat side of the wildfire cleanup, given their direct focus on hazardous waste and industrial services.

  • Tetra Tech (TTEK), Waste Management (WM), and Veolia (VEOEY) may also see some incremental revenue from broader disaster-recovery or debris-removal efforts, but the EV battery disposal portion is less central to their overall operations.

  • Rating Recap:

    • Clean Harbors (CLH): 8

    • Heritage-Crystal Clean (HCCI): 7

    • Tetra Tech (TTEK): 5

    • Waste Management (WM): 4

    • Veolia (VEOEY): 4

TTEK is a name I am already in from my query on winners from wildfire clean up. CLH has an interesting chart, undercut and rally at the 200 day. Short term a bit extended though.

I took a 1/2 position and may buy more if we get a pullback.

AI Theme-AI Agents

A couple of articles over the weekend highlighting AI Agents and CRM in particular. I bought the stock (calls) after Jensen said AI Agents are going to be huge and I asked GPT for the winners.

While Microsoft Corp.’s Copilot has become the standard-bearer for the first generation of generative-AI software, Salesforce Inc. has beaten Microsoft to market on agents. Agentforce 2.0 is rolling out now, and Chief Executive Marc Benioff has been doing the media rounds promising that it is a “multitrillion-dollar market.”

The point about Salesforce is that its exposure to agentic AI comes at a reasonable valuation. Its enterprise value is approximately 24 times the free cash flow expected for the next 12 months, well below the five-year average of roughly 33 times, TD Cowen says. The average for select large-cap peers of Salesforce is 24.5 times, the analysts say.

I asked GPT to analyze the MarketWatch article and rate each company’s potential from 1-10.

MSFT 9

CRM 7

IBM 6

NVDA 10

META 8

SNOW 7

I own all except for SNOW, which I ought to take a look at.

Somewhat interesting chart, looks like it wants to make a run at the highs again.

Here is why GPT gave CRM a 7….

Challenges: Many remain skeptical about near-term payoff. Rapid rollout to small/medium businesses is questionable, plus integration complexity can slow adoption.

I also asked for key suppliers

Suppliers to watch: AMD, TSM, Arista (ANET), Broadcom (AVGO), and Keysight (KEYS) if agentic AI deployments proliferate, driving more advanced data center infrastructure needs.

I’ve stayed away from AMD and TSM, KEYS I do not own, will take a look at that also.

DOGE Theme

I asked GPT whether this is likely to slow down DOGE….

Conclusion

  • Political Angle: Ramaswamy leaving DOGE likely reduces the task force’s heft and may delay or diminish sweeping spending cuts.

  • Market Angle: Companies dependent on federal funding or contracts—particularly in defense and healthcare—might see less near-term risk of budget cuts. If they were previously discounted on “DOGE fears,” they could enjoy a modest rally back, though broader economic conditions often overshadow these policy stories.

Overall, while the exit of one individual doesn’t doom an initiative, it does signal less momentum behind aggressive government-spending reductions—something that may reassure some government-exposed businesses and investors.

I then asked it to rate company impact from 1-10, it didn’t rank anything above a 7, which makes sense because of the uncertainty. Here are the 7s…

LMT

NOC

BAH

BAH has an AI angle to it and is a company I currently own, pre DOGE drop unfortunately.

AI Theme-Apple

AAPL is a core holding and I have long believed that is is poised to be a big winner from AI. Poised being the key word, they still have to execute. The stock has been dropping in recent days, mostly because of this…

I asked GPT for it’s opinion on the article, not getting me out of AAPL, but something to keep an eye on….

Points of Agreement

  1. China is Critically Important: Apple can’t afford to lose momentum in a market that typically represents a significant slice of iPhone sales (15–20% of revenue). Delayed or restricted AI features hamper competitiveness against local brands with stronger “AI arms race” marketing (like Huawei).

  2. Short-Term Impact on Sales: Missing or limited AI capabilities for Chinese consumers likely contributes to losing the #1 spot. For consumers increasingly AI-savvy, having restricted agent features is a tangible negative.

Points of Disagreement or Caveats

  1. AI’s Near-Term Efficacy: The article implies Apple’s AI offering is behind or not contributing to current demand. This may be correct in China specifically, but globally, Apple’s robust ecosystem, design integration, and brand loyalty can let them catch up quickly—especially if Apple integrates advanced AI for Western markets with fewer regulatory delays.

  2. Long-Run Potential: Even if Apple stumbles near-term in China, the brand’s track record suggests it can still deliver AI-driven enhancements that resonate with global users. Apple historically lags on certain features but often wins with tight hardware-software synergy once they fully commit.

Conclusion: The article’s immediate conclusion about Apple losing China market share is credible. That said, Apple can still roll out advanced AI (including more robust agent features) in iPhones globally, potentially regaining traction if local regulators eventually approve them for China.

Can Apple Be a “Big Winner” in AI with iPhone Integration?

Yes, Potentially—especially outside of China:

  1. Hardware + Software Vertical Integration: Apple controls the chip design (e.g., A-series, M-series) and iOS, which can yield efficient on-device AI (private, offline) that some consumers prefer over purely cloud-based solutions.

  2. Ecosystem Lock-In: Apple’s loyal user base means once they roll out advanced AI features (Siri 2.0?), hundreds of millions of users upgrade or adopt them swiftly, driving a new wave of iPhone sales or service revenues.

  3. Strategic Partnerships & Developer Ecosystem: Apple might incorporate generative AI or agentic apps deep into iOS, letting third-party developers innovate. This synergy can expand the “AI experience,” a selling point for future iPhones.

Caveat: If Apple’s approach to AI is too conservative, local competitors in Asia can keep outpacing them. Overcoming China’s regulatory and marketing environment for AI features is crucial to reclaiming share.

Final Take

Agree the article accurately portrays short-term setbacks for Apple in China, especially around AI features not yet approved. Apple’s brand, design prowess, and integrated approach could still let them become a major AI winner if they push a robust AI agent into iPhone globally. However, near-term limitations in China hamper them now—resulting in lost market share and a negative revenue impact.

The bottom line: Apple can absolutely become a leading force in AI if iPhone-based AI integration matures and gains regulatory approval in key markets like China. But the article’s cautionary tone about Apple’s immediate struggles in that region stands—it’s a real short-term headwind that Apple must address.

Short Regional Bank Theme

If borrowing benchmarks remain high, regional banks risk higher losses on commercial real estate because borrowers will struggle to refinance, said Tomasz Piskorski, a finance and real estate professor at Columbia Business School. He and fellow researchers estimate about 14% of the $3 trillion of US CRE loans are underwater, rising to 44% for offices.

Quantum Computing Theme

The latest decline shouldn’t surprise investors because the stocks are usually volatile. They saw double-digit percentage decreases after Nvidia CEO Jensen Huang and Meta CEO Mark Zuckerberg said last week that “very useful” and “practical” quantum computing would be decades away.

Quantum has the potential, I repeat potential, to be bigger than AI. Position size accordingly (why I like options) and go longer dated (if you are using options) and the volatility doesn’t really matter.

Argentina Theme

I sold all my Argentina stocks a few days ago, I’ve been in them pretty much all the way and it was time to take profits. I will get back in on any significant dip. I do have my eyes open for other potential Argentina’s out there. Nothing yet.

Final Word

  • Milei’s victory reflected a unique confluence of severe economic crisis, populist appeal, and radical libertarian proposals.

  • Investors seeking a parallel “shock therapy” candidate in other nations will find few direct equivalents among newly elected leaders.

  • Daniel Noboa (Ecuador) or potentially Santiago Peña (Paraguay) might introduce friendlier business environments—yet they are neither as radical nor operating in markets as large or distressed as Argentina’s.

  • Conclusion: No near-term “Milei effect” in other countries at Milei’s scale. However, smaller pro-market shifts can still create localized investment opportunities if leaders deliver tangible, business-friendly reforms.

I’m closely watching Canada and will be delving more into it at some point soon.

I would argue that some of the issues stem from the design of the indexes (or in ARKKs situation that quality of the management). AI has made traditional indexing obsolete, people just haven’t realized it yet.

Keep an eye out for some stuff from us on this in 2025.

Everything Else

Dividend stocks are in a tough spot. They should be performing better, amid expectations for more interest-rate cuts, but a strong jobs market and higher Treasury yields are holding them back.

There is no “edge” in just paying a dividend, and therefore no reason to buy a stock just because it pays a dividend. You should be buying stocks based on a theme, for example, if you want dividend stocks how about dividend stocks from companies that will benefit from integrating AI?

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