Earnings Watch (Feb 27): Nvidia Expectations, Home Depot, and Value Picks in Financials & Energy

Welcome everybody to Friday, February 27th, our earnings watch. I think this is our 3rd or 4th in a row, and in the spirit of respecting some of our longtime customers who said we want this to start on time and not wait for stragglers, we're going to get going. Let me share my screen. We will dive right in here. All right, so let's create a new portfolio for Earnings Watch 2/27/26. And this is how this would work in your professional membership if you had one of those. You come in here and just type in a bunch of tickers. Bam! Here we go. Let's go in order of market cap. All right, Nvidia. Bam. Okay. What happened to Nvidia this week? By the way, I'm looking for lots of feedback in the chat and the Q&A. It's late on a Friday. You guys have probably already started looking at the weekend. You're a little looser than normal. Let's make this a conversation. What happened with Nvidia? Why did the one of the most profitable stocks in the history Of the world not have better performance this week. Today down four percent, seven percent. I think the last couple of days it's probably down even more. They beat on the top and the bottom line. Yes, Sam, you're right. The market had higher expectations. If this is not the definition of price for perfection, I don't know what is, folks. These are some pretty astounding numbers, and honestly, just at a 1% free cash flow yield, it's going to be— the free cash flow is huge, don't get me wrong. Let's take a look at how big the free cash flow is. Free cash flow is huge, but the enterprise value, even huger. I know that's not the right word, even more huge. Look at this, $4.4 trillion. And yeah, even though you're throwing off like $56 billion in free cash flow, and by the way, That's up there with the best of all time. The expectations are just so high. And if you guys have not seen any of my special letters and analytics on why Nvidia is so expensive, this stuff goes back a while, for a while, and it kept getting expensive and more and more expensive. But I'm telling you, this is a dangerous one. It's a dangerous one. And I think you're seeing a market becoming a bit more discerning. When good news is bad news, that's very different. When bad news is good news, yeah, things are— we've seen those markets as well. But I think this is a time for people to maybe take stock that the market is not just going to arbitrarily cheer everybody on no matter what because you're a popular stock. So Nvidia, look, don't get me wrong. Good company, right? Bad stock. And even the false positive here is just that accounting earnings are going up a little bit faster than economic earnings. We don't like that. That's not necessarily a good sign, but return on invested capital, super high. Shares going down, like you love all this stuff, but all the good news is priced in, my folks, my friends. And I see returns on capital going down here. My guess is We've seen invested capital jump up a bit here in the last period. Yeah, 52 kind of doubles. Wow. Total assets close to doubling. My bet is I think working capital also jumped up a bunch. We can open a model and take a look at that. No real earnings distortion, a slight difference, so maybe a miss. And that's part of a guide down, right? The guidance wasn't as expected as, as good as expected. So the miss applies to reporting on the top and bottom line or the guidance. Any of those negative, then that's what the miss is about. Because oftentimes before they actually show lower numbers, they're going to guide lower. It makes it for a little easier crash landing. Nvidia really dragging the whole market down today. Love to take a look at— this is my place to see how the market— MarketWatch is like the sort of cleanest, pure financial news headlines. I don't want it to be sullied with political stuff. Just tell me what's going on in business and in stock markets and world affairs and things like that. And I don't want anybody trying to influence me in any particular way. So yeah, I think the S&P bounced back here quite a bit at the end. It was down as much as close to 1%, 0.8% right before the, the close. Pretty good bounce back there. All right, who we got next on our list? As always, put your comments into the chat or to the Q&A. I want to hear from you as always. Yes, Sam, you're looking forward to my reverse DCF on SpaceX. Yes. Hey, how many people think that Tesla is going to get bailed out by being bought by SpaceX in the same way that they bailed out XAI or Twitter? I think that's the only way, dude. Tesla has no business. There's no business there. It's like the— it's just like robots. Come on. The robots are so far behind firms like Boston Dynamics, I think is the firm. There's just a lot of other firms that got robots. Anyway, we don't have to talk about Tesla. Maybe it's getting a little too political. Don't want to offend anybody. But yes, reverse DCF on SpaceX, to the moon. Pun intended. All right, Home Depot, neutral rating. What happened to Home Depot this week? I think they came out a little bit light on their— what they always do pretty well today. Good for the week. Good home builder stocks had a bad day, up and down. Lowe's didn't do as well. Increases outlook earnings estimates first time in a year. Tops earnings. So good, uh, good quarter for Home Depot. Looks like, though I do think that there were comments that they are seeing some strain on the consumer. You know, nothing new there. No, I think no shocking news. I think we're all seeing things get tighter as opposed to easier, and money's not flowing around quite as flippantly as it did for a while there. And so Home Depot, good company. Pretty expensive stock. Clearly not returns like Nvidia and other firms where the returns on capital are 170% or whatever. So it's not as expensive as Nvidia, but probably relative to the business model and its potential growth, it's just as expensive. CRM. Okay. Interesting company because of the way it plays into AI, right? Is CRM going to get blown up or CRM going to benefit from AI? Maybe somewhere in between, but where, where's the balance gonna lie? It won't be right. It won't be right in the middle. It won't have a neutral effect. And I, I think people underestimate how much enterprise software, how difficult it is to replicate that. It's not something you can build a vibe code around. Okay. Vibe coding, folks, is like, you know, it's great. It's introductory level coding. You are not doing sophisticated things. It still takes very sophisticated instructions for a machine to produce sophisticated results. Just to the extent you can actually automate a process because you can code it, that's great. It's made it easier to do that. And I think a lot of people are doing a lot of things manually, which you've never been doing. Just a little bit of coding capabilities, you fix that. I think that's what's happened here. And I think a lot of the SaaS-pocalypse is overblown. But if you don't have a really sophisticated deliverable, Look out, because AI will eat that up. If it's something that can easily be trained for a machine to do, AI will eat that up and it will do so yesterday. So that's real, in my opinion. With Salesforce, they've got a lot of client data deeply embedded into the processes. So they've been able to really deeply entangle the inner processes of the company in the software. And that's just not something you can rebuild overnight. Can't fix that. You can't. Data is unstructured, a lot of it. In some ways CRM has structured it, but they're not going to give that up. And CRM or Salesforce could feed an AI. There's no problem with that. But it doesn't take away the value of what CRM does in terms of organizing and analyzing that, all that data. So that's my take. Not all these companies are the same, but another good business, expensive stock. Good week. Earnings beat, commits $50 billion for what? Buybacks. We like that. Good use of capital. Disappointing sales outlook feeds AI fears. Interesting. But overall, pretty good week today. Not so good, but that's all right. Take 10% on the week, wouldn't you? So interesting dynamic there. All right, knocking down the list. Let's talk about Lowe's. We talked Lowe's and Home Depot should be talked about at the same time. My bad, I should have put that in there sooner. Tough week for Lowe's, didn't do as well. Beat expectations, why the stock is dropping. So it's interesting, these stocks tend to use pretty weak guidance overshadowing a 4th quarter beat. So Lowe's, yeah, in line, but they dropped the guidance. Semi-right by this, but not really, right? We should say a miss even if they drop guidance. And this, I think, is where maybe Home Depot's separating from Lowe's here and with a slightly better business model. You still got good company, expensive stock. They're in the middle of digesting a large acquisition, so that's not a good thing for us to really understand the fundamentals. But yeah, it's expensive, but it's not cheap enough to be attractive. Not expensive in the same way that some of these other firms are expensive. But still expensive. Wouldn't mess with it. All right, let's look at a very attractive stock. How about this? Toronto Dominion Bank. We've seen a lot of financials look pretty attractive to us here recently, I have to say. And I think financials are underrepresented in general, and a lot of it's because it's a tough rate environment. But I think these are good businesses, and I don't know that they're going to be disintermediated anytime really soon. I think that Some of that has been overplayed for a while. These bigger banks will use AI and will use new technologies to make themselves more efficient, but they're not going to go away. But yeah, look, good company, cheap stock. That's what we like to see. See what— how did the stock do this week? We were looking at a— so beats estimates on strong results across its business lines. Quarterly earnings lifted by gross gross operations. Canada's doing pretty well. Good for them. Good for them. We'll be getting a new filing any day now, probably this weekend. I don't know, to be honest with you, probably be updated really soon. But yeah, solid business all the way around. Yeah. Let's see what's going on here. I wonder why we haven't seen this on our radar sooner. We don't have too many very attractive stocks in the system. So year to date, 6 months. Done well. There we go. Big jump in earnings, but a little bit of a jump in economic earnings. Not quite. Shares going down. We like to see that. Return on invested capital, good and steady. Yeah. I don't have a lot. It's hard for me to come up with anything bad about that one. It looks pretty good. I would take a close look at this, folks. Very attractive. Intuit. Good company, bad stock. I think I'd leave it at that. These guys, I don't know. This is one where I think AI. Yeah, people gonna can put that payroll information, tax information. You got to put that in anyway. Don't know how strong this business model is. Profitable, yes. Currently, yes. Good company, yes. Expensive stock. I'd watch out. Misses estimates. CEO says AI isn't a threat. Of course he does. Five days up ten percent. That's a pretty good miss. What do we have in here? We had inline, so we didn't see anything too impressive. Strong 2nd quarter results, reiterates full year stock slides, sees AI benefiting business. We'll see. Yeah, these are the QuickBooks guys also. Am I right about that? Anybody? I think so. We use QuickBooks and Not happy. They've screwed up so much stuff and they just make us have to fix it. They send filings to the wrong states and don't pull us out of the state even though we've left the state. So they're like sending us bills and penalties for not sending in filings that we don't have any employees in those states. It's, come on, man. Not cool. Not cool. And it's just, things are harder to find and harder to use. It was better before. So I'm personally not a fan, but. Look, it's a pretty essential service. It's been automated largely AI. I just don't see the moat quite as wide around this one as I would some other software stocks. But then again, I'm a little bit biased. MercadoLibre. Yeah, pretty expensive. I don't really think I'm going to be doing much here. MercadoLibre down 12%. Falls after Q4 results. The revenue beat wasn't enough. Interesting. Wait, I'm in line. So it looks like, yeah, mixed results, but technical weakness. AI investments support 45% revenue surge. Yeah, down 12% this week. In line. I think another good example of expensive stock, price for perfection. I don't think you're going to see eBay This expensive, and eBay has just been one of these businesses. Yeah, I said for a long time, like eBay is a great business until they start getting expensive, then people are going to go somewhere else. So they've kind of got limited margin potential. As long as they stay in their lane, they'll be around. They'll do great. They'll generate a lot of cash flow. But I don't think growth is going to be that great. Let's see the price. It's come down quite a bit. So maybe that's a good thing. But yeah, I don't. I wonder. I haven't thought really about. You need the value of an auction place is always the number of participants. And I don't know how. AI replaces that unless the AIs sort of create their own auction place. And that would mean your AI does your shopping for you. You don't want to look at it, but AI would still probably want to use eBay. Someone's got to go and post that stuff. I don't know. I don't really see eBay as having a lot of threat there. Be happy to hear from anybody else if you feel differently. All right, let's talk about an energy— some energy companies here. EOG Resources. Large acquisition suspended. Just got a new 10-K. We like this stock. Attractive, cheap. How'd we do this week? A bit of controversy around energy this week, wasn't there? Flat. Good today. We like this company because it's like a toll taker. Makes money either way. Doesn't really have to ride prices up and down. So that's a— that's— we think that's a good thing. Let's see here. Free cash flow yield, not so great, but price to economic book value Really low market implied growth appreciation period. This is one of our most important metrics when it comes to stock picking. I think this is a great one. And then if you're actually, if you're a professional subscriber, you can screen on this stuff. So you can go in and say, listen, I want all the companies with a gap less than 1, and you can just knock it out. You can do it by sector. You could combine it with very attractive and attractive rating. And good economic earnings and a strong B, go. Like, it's not many companies meet that kind of criteria, right? To be able to screen the entire market to find companies that meet these 3 criteria, that's unbelievable. It's unbelievable. That's an amazing thing to do in a couple of clicks. And for $9.99 a month or $10,000, almost $11,000 a year, that's incredible. Like it would take you 50 analysts to do that and you'd have to pay them all at least $120 grand and to have that. And I don't think the models would be as good as ours. So that's a pretty incredible capability. Let's get back to our portfolios here. So yeah, EOG, we like that. Dominion Resources, it's more of a utility and utilities have been bid up for a while. It's been expensive for a while because it was an anti-inflation play and they're not as profitable. Are they going to do well with that whole AI thing? I don't think so. I don't really know why that's such a— yeah, they're going to have to produce more power. Maybe they're going to have to regulate more stuff. I don't know. But the profits don't go to utilities, right? If they're making too much money, they lower prices. Making too much money or they raise prices too much, people get upset. So it's not like it's a— it's not really a for-profit business. It's regulated. And when they've tried to run it like for-profit businesses, it has not gone well for people most of the time. For those companies. So Dominion Resources, what do we got here on those guys today? Not a good week. Not a good week. What the results mean for the AI power boom. What do they got to say about this? A broader thesis: AI infrastructure is becoming a genuine earnings driver for regulated entities, not just a talking point. Yeah, I don't know. I'm not really so sure on, on the utilities. They don't look as good. A FANG, Diamondback Energy. I've been looking at this company for a long time. It's got a great ticker and company name, Diamondback FANG. Yeah, not as good looking a business. Free cash flow, that's a big negative. I mean, wonder what's going on. What's going on? They had an acquisition closed here recently. That's gotta be it. 'Cause free cash flow pretty steady. 2 big years, 2 bad years in a row. Interesting. Look at invested capital. Shares going up, not good. Economic earnings going down, not good. Return on capital going down, not good. Wow. NOPAT steady. Okay. You know, this is real value add here, folks. This is a great example. Net income, right? NOPAT just fine. This is called— this is definition seeing through the noise. Same thing. Core earnings steady. Net income. What is that about? Probably a bunch of unusual charges related to the acquisition. And on the balance sheet, total assets, not a huge— yeah, here we go, huge jump there. Not as huge here, but invested capital, still a pretty big jump. $32 billion, that doubled here, but it really only added about $7 billion here. So I think the acquisition was 2 years ago, they closed it. Still free cash flow Okay, that was the big negative. I was looking at the 2-year average, my bad. Yeah, free cash flow negative $32 billion, and then here just negative $3 billion. So not so bad, but $17.9, $18 billion, that's going to be in your 2-year average. And part of the reason we use a 2-year average is because this is anomalous acquisition. Now, does it count? Yes, it still counts, but they're not going to be able to do that every year. They don't have the money to do that. Same reason in our AI winners and losers, we're saying that these AI companies can't spend this, Huge gobs of CapEx and have super negative free cash flow every year forever. Some can only make it, maybe sustain it for a few months. If you've not seen that report, I recommend you get your hands on it. All right. Any other questions before we take off here? Thanks for being with us today. We'll take some stock requests. We got a couple minutes left here. Good idea. All right, Sam, let's let you go first since you EPD, Enterprise Product Partners. Oh, what was this? A setup to get you to reveal one of our focus list long stocks? You guys can thank Sam for this. Yeah, we like this company. We like the stock. It's a master limited partnership, and we used to suspend those and not really count them, but then we just liked them too much. And I think part of the reason they're master limited partnerships, because the people started this business like, this is such a cash cow, we need to take advantage of this. So they tend to trade at a bit of a discount to some other companies, but It's like EOG. It's a toll taker. So as long as energy demand is persistent, people are going to— these guys are going to make money. It doesn't matter what the price is as long as demand is persistent. I don't see demand going anywhere, and neither does anyone else for that matter, folks. Neither does anyone else for that matter, because every estimate we see for energy consumption and demand is up and to the right for the next 20, 30 years. Maybe not like this. But, and that's fossil fuels as well, folks. So we haven't seen any of these negatives. So this sort of the demise of fossil fuels was greatly exaggerated. Let me know if you have any other questions on that. F&G Annuities and Life. Yeah, I said I like financials, but not this one. It looks pretty cheap. The business looks tough. I don't know much about these guys. Insurance company, I'm guessing. Not been around for a long time. So we don't have a ton of history here. Return on capital up and down. We sometimes see that. They report here recently. Tough day, tough week. Strong sell at Zacks. Ooh, Zacks. FG Life. So a life insurance business. Yeah, interesting. Don't know what to say. It doesn't look like they do anything special. You know, life insurance is life insurance. Pretty competitive industry. Okay, great guys. Thanks for being with us today. We covered a bunch of stuff. We'll probably do— be doing this again next week. I appreciate you being with me and have a great weekend. Thank you.