New Constructs' Live Monthly Podcast - 21 Mar 2025

Welcome everybody. Kyle and I were just talking about the market today being unusual. Normally when we see a down day, we see the stocks we like going up and bad stocks going down. And on up days, it's kind of a flip. Like it's mostly feels like the stocks, you know, bad stocks go up in a frothy market. Like when kind of everything's like buy everything, you know, then those, a lot of the zombie stocks and danger zone stocks, they're doing really well. Today's a little bit of the opposite. We see a lot of zombie stocks, danger zone stocks up while more of the stocks we like down. So that's sort of surprising. I wonder, my guess is that we're going to see something happen by before the end of the day. There's, there's some noise in this market. I wouldn't be surprised to see the market take a pretty significant downturn in general at some point before the end of the day. And what we're seeing right now is a little bit of artificial support, maybe because of the option activity and things like that. What I want to start with today is the same thing I started with in our most recent training. If you didn't see it, I highly recommend our most recent free training. I started with what I'm going to start with today. And that is a message to you and to our clients that we think our research now is more important than ever. When FOMO and MOMO aren't ruling the day, you know what moves from the backseat to the front seat? It's fundamentals. When the market doesn't have animal spirits driving it or some artificial momentum, FOMO driver, COVID, Extreme amounts of liquidity, when it doesn't have those things sort of overriding its senses. Think about those things as like drugs. When it's not drunk or high on FOMO or MOMO or liquidity, what does it get back to? Get back to what we all—it gets back to what we all get back to, which is fundamentals. What is at the end of the day is going to actually serve me, make me healthier, make me better, help me survive as humans. We don't do well if we waste resources, and neither does the market. And wasting resources is allocating capital to really bad stocks, to stocks that are completely disconnected from fundamentals, like our Danger Zone stock next week, like our Danger Zone stock last week, where we're seeing just absolutely absurd disconnects. And we have for a while now. Those disconnects have been dramatically compressing just in this month. And we think that's going to continue to be the case. And what I submit to you is that new constructs research, if you didn't think it was important before, it's super important now. And as I've always said, I'm not here to say that fundamentals are supposed to be 100% of your process, but should not be zero. Should not be zero. And if you're relying on fundamentals at all, make sure it's the truth. Because if you got bad fundamentals and you're Anchoring on that, then you're in trouble because you've got a complete disconnect on what's really going on. So yeah, I want you to know that we're here to help, and I think we've got a great track record of being extremely helpful, honest, direct, transparent—all the things that I think are in desperate short supply in this market. New constructs is and has been. So if you haven't seen our most recent training and our special offer. You need to get in there and check it out because we're making an extremely, extremely good offer for a professional membership. And we, you know, last second I said, you know, Kyle, let's make this offer even more aggressive. Let's put an even bigger discount in there because you know what? We care about helping investors be successful. And if you want to get into the best stocks in the market, guess what, man? We've kind of got to We've kind of got a good feel on that. You look at, and we're going to get to this in a minute, but if you look at our Very Attractive Stocks Index this year, the index created by Bloomberg launched last year. If you look at the performance of that index compared to the S&P 500, it's crushing it by like over 7% already year to date. It's up strong while the market is down big. So, yeah, I, you know, I don't know what else really there is to say except that We've been honest, we've been transparent, and we've got a track record that's— I don't want to say second to none because I haven't seen everything else out there, but we've done a great job. And I think honesty pays. I think integrity pays. I think fundamental pays these days more than it has in a long time. And with that, I will step off the soapbox and let Kyle take back over here.

Stealing some of our thunder on the indices later.

Can't help it. There's a lot of thunder to go around on that one.

Yep, welcome in. We titled this monthly podcast, you know, What the FOMC Meeting Means for the Market. We'll get into that a little later, but we've got a packed agenda. We'll start off with the disclosures, disclaimers. The main thing is we are publishing research, we're not providing advice. You can take a look at these, they're on our website as well. Today's agenda, like I said, we got jam-packed, we got a lot of stuff going on. Next podcast will be April 11th for anyone that is already registered. You can tune in at the same time on April 11th there. But research since we've last spoken, at least on this podcast format, we've done a lot of stuff speaking with customers and clients, not on this podcast, but since last time we've got a couple different updates on long ideas, some new danger zones, closed actual, closed a position recently, updated some focus lists. We had some trainings, earnings watch parties. We did a ton of those. We've got a link to all of those in this presentation and a little bit later. We'll send these links out when we email the replay to everyone. We've entered filing season, as we talked about last month when we were putting together the filing season finds reports that take a deep dive on usually one company that we've pulled out from that week's filings. You know, something interesting in the footnotes, something interesting, you know, maybe it's reported, but the stock is still, you know, huge disconnect in what we're seeing. And so definitely worth checking out to see, one, how much work's going into filing season, and two, maybe some companies you didn't realize had some interesting stuff in the footnotes. We've put together some DCF case studies, Spotify and Affirm is the second one. And then a whole bunch of model portfolio updates. We've got all our model portfolios get updated monthly, focus on stocks, long and short. We update as needed when we kind of see stocks moving in and out, need to make some changes there. So we've actually updated both of those this week. And then we've given out some featured stock picks. Those are free stock picks. They're shorter versions of long ideas or danger zones for everyone to check out. To kind of see what goes into our research process, what makes a good stock, what makes a bad stock. As for today, we'll talk about some special webinars and trainings. We're going to talk about those indices David mentioned at the top there, some new features and products, filings, season fines. Then we'll get into the community. And I realized I forgot, we're also going to talk about the FOMC meeting. Didn't put that on the agenda today because we got a whole slide on it. And then if you have any requests, stock picks, we might take a look at some at the end if we've got any time. That will be a live watch only. That will not be in the replay as a thank you guys for attending. So with that, we'll get into that first topic, recent trainings. David just did a Let's Talk Long Ideas. If you're in the community, that replay has been posted for pro and higher members. And then just this past Wednesday, we did our latest training, the Earnings Season Reality Check. Are your stocks built to last? We've got replays going out via email. You can check those out and See kind of where we are post-earnings season, you know, going into next earnings season and in the current market, how we can best leverage our data to find those good stocks and identify those bad stocks. But next up, we'll go indices outperforming. This is some fun ones to put together. It's always good to see outperformance, especially in volatile markets. The Very Attractive Stocks Index, which David mentioned at the top, it's managed by Bloomberg. So far this year, It is outperforming. It's up 3.8% as of yesterday's close while the S&P is down 3.7%. We've got a nice chart here to illustrate that as well.

Yeah. Anybody have any questions about these indices? Because I mean, I'm honestly, I'm pretty fired up about this. Like, this is— you want proof that what we do works? I mean, this is it. These are live bullets. This is like live active traded as an index on the Bloomberg system. This is loaded up into their Index Licensing Group's service. There is not an ETF, so you can't trade it yourself directly, but it is a live, real traded index. So this isn't us saying that our picks work or anybody else or some zero. This is active, boom, boom, boom. Like, so you want access to very attractive rated stocks, you want to be able to access them like that, you know, there's one place and they do this well. And this has got to be something that's got to drive a lot of interest. And you can get these, you can, you can in a second Get all the very attractive rated stocks by sector, by subsector, overall, and are with our professional membership. Sorry to jump in there, Kyle, man, but I mean, I just— No, that's all good. This can't— I mean, it's unbelievable.

Like, you know, we always say proof is in performance, and here's the performance. So, but it is not the only index. We've also got the Core Earnings Weighted S&P 500 Index. There's, you know, B500 NCT. also managed by Bloomberg. This one's outperforming in that it is down less than the market this year. Basically takes the S&P 500 stocks, instead of market cap weighting, weight it by core earnings. So we're looking at, you know, superior metric of earnings, picking the best companies that way, and we see the outperformance in that index as well.

And what I'd like to say about this is that, hey, you don't— we don't even have to pick the stocks. We'll let somebody else pick the stocks, but if you weight them based on core earnings, you're going to get outperformance. If that's not a good endorsement of what it is we're doing, I kind of don't know what is. I mean, honestly, like, you just take the same stocks that someone else is picking, weight it based on core earnings, bam, you got better performance. To me, this is the next generation of indexing. Why have we been indexing on market cap for 68 years? That's how long the S&P 500 methodology has been around. Been weighting on market cap for 68 years. Okay, maybe it's time for something better and new. And, and why not wait based on core earnings, especially if it's proven to have alpha in it? Then we're singing the Alpha Manifest. So it seems like a better way to put together every index, whether it's an energy sector index, whether it's the S&P 500, whether it's tech stocks, whether it's large-cap value. Why wait on market cap when that's what everyone else does and it Ends up just creating a lot of excess concentration, as we've seen, less efficient markets when you can wait on something superior.

Next up, we'll move into on the agenda there, new features and products. We've only got one, but it was a popular one and we did a ton of it. The earnings watch parties. David jumped on during earnings season, you know, day after, morning after earnings reports and looked at, you know, 15 different sessions here. We got links to all these on our website. And also in this presentation that we'll share. And we're excited we'll be doing these in the 1Q25 earnings season as well. Once we start getting earnings reports, you know, mid-April, we'll go on and basically dive in to see what the earnings report says, but what our model looks like. Because a lot of times, you know, those headline numbers aren't, you know, what they appear when we actually dig in deeper. So this is a great way to see system in use on maybe a ticker you want there. As you see, there's tons of names here. Or maybe something you didn't know you were interested in, you might find, hey, that company looks way more interesting than I ever realized. Because when you look below the surface and look at the valuation, there's something worth digging into.

And sometimes, Kyle, we talked about a lot more stocks than even on this list because we took requests. And I did a bunch of reverse DCF scenarios in here as well that we don't— you know, that's not really indicated in, in the title here, but where we like go in and show you like, okay, why Why do we think Carvana is expensive? I mean, it's going to have to like become as big or better than CarMax or something, right? With like twice the margins. And that's what's baked into the stock price. And you're like, okay, that's crazy. Dunkin' Donuts or Krispy Kreme. I'm sorry. I mean, that— I remember that, like, that valuation crazy too in terms of like the implied market share gain and what it's going to do. And it's really fun for me, I guess, because I'm a reverse DCF model nerd, but I just— I can't. I don't— I just can't imagine going through my investment process without at least understanding the expectations baked into the stock price. I mean, this is what the market price is saying the fundamentals of the company will be. Is that realistic or not? I feel like it's valuable. You may think it's unrealistic, but it's still a good trade. But you should at least know. There's no reason not to know that truth.

And then post-earnings season leads us into our next topic here, filing season. once we get, you know, the headline numbers come out and then we have to wait for the filings. In the current period, it's even longer because it is the annual filing that has, you know, the entire year, all the footnotes, all the MD&A. And so when we get into the, what we call filing season, we get most of those calendar year companies reporting their 10-Ks. We put together a couple reports here you can check out on the site. But like I said at the beginning there, we look at, you know, the work we did that week. And like, see data points collected, number of adjustments, what the total dollar value of those are. Right now we're up over, I think cumulative over $22 billion in, or $22 trillion in dollar value of adjustments. It's over, you know, 260,000 data points collected that go into building all the models for the companies in our coverage universe. And this week we've noticed a whole lot of companies reporting weak internal controls coming out and the auditor saying, hey, something's not right in your internal controls over financial reporting. That increases the odds of something being wrong or restated in the future. And so we're pulling these out as soon as we see them. We flag companies that have weak internal controls of the suspended rating because you don't know if you can trust the financials, and that's something we want everyone to be aware of.

You know, if you want to think of an example of where this was a big issue recently, like, why do I care? Supermicro had a weak internal— flashed weak internal controls at the end of August last year. And if you don't remember what happened there, I think the stock's down like 50%, 60% since then. It was down right away. Right. So weak internal controls. Keep in mind, that's from the auditor, the auditor who gets paid by the company they're auditing, saying, whoa, I need to put out there a disclaimer that I don't really trust the data the client's given me. So whatever I'm reporting here could be bad. That's a really bad sign. And we saw a whole bunch of these here recently. To me, this might be one of the best leading indicators of anything out there because nobody else really looks at this, I think, at scale. One of the best leading indicators that we could be heading into a rocky market, right? Because there's one thing that I think even the FOMO, MOMO people will pay attention to is if earnings estimates really start to disappoint. And if we see that auditors are wary of companies exaggerating or stretching the limits for earnings, and they call that weak internal controls, you know, that's an early sign that we could see a bunch of earnings misses. And that could lead to people questioning the super high PE because it looks even higher now when the earnings go down or aren't as high as they're supposed to be. And that leads to, you know, a market fall.

A lot of times in the auditor's note here, like this screenshot here from Maravi Life Sciences, you know, specifically says at the bottom, the weakness in internal control is related to revenue, Receivable and goodwill impairment. You know, not something that minor, you know, they have issues with revenue. Well, that's a big deal.

Yeah, you think you got to get that right. I mean, let's face it, man, this is what people do for a living at these firms. They've been doing it for a long time. And it's not like the auditors want to upset their clients. It's like, that's fun for them. Like, oh yeah, you know what I want to do? I want to go, I want to have to report weak internal controls because, you know, that's a very uncomfortable meeting. They got to go in. talk to their client who writes a check to them and say, by the way, we have to do this. They might get fired. You know, I mean, that's what Supermicro did. That didn't help them.

No.

Actually, sorry, the client— the auditor fired them. That's really bad, right? When the auditor's like, you know what, we're not going to take your money more because you are a reputation risk. And, and, you know, there's all kinds of fake noise, fake information on that Supermicro because they came back and they found another auditor, but that auditor was a joke. Because, by the way, if one auditor fires you, it's going to be hard to find another one. It's like, okay, Ernst Young wasn't able to— I don't remember who Supermicro's auditor was, but just as an example, Ernst Young says, yeah, we can't work with this guy. It's not like a lot of other people are going to be lining up to be like, oh, but I will.

All right, don't see any questions on anything there, so we'll jump in. I don't know if you want to take over the screen or anything. We got some slides on the FOMC meeting and what does it mean. I know that was the big event from this week, kind of came and went. But where do we go from here?

Yeah. So let's talk about that. Let's talk about FOMC. A lot of people said it's kind of a nothing burger, but we think nothing burger is big-time information because we're in a tough market and there wasn't a Fed put. And keep in mind, the media spun this as very positive. Most of the pundits spun it as positive. But Fed Powell, Fed Chairman Powell, not coming out saying, oh no, everything's gonna be okay, we're gonna just lower rates, and instead standing firm that, you know what, we're gonna let this thing go. I mean, to me, you know, that's huge news. And when it comes to taking care of our clients, we've done the best we can. Like I said in the beginning, we're here to help, and we think our research is more important than ever. And while we can't turn back the clock and fix what's happened for you, we can help you going forward. It's never too late to get healthy. It's never too late to get smart. I remember when I was at the Financial Accounting Standards Board group, I remember the chairman of the FASB said that to one of our analysts, and I'll never forget that. You know, you always reserve the right to get smarter. And look, when it's about protecting your portfolio, your clients, your family, I think that's a big thing. And I think it's important for us to emphasize here and to point out one of the things that makes New Constructs different. It's not just better data, better ratings, outperformance, all the stuff you want, is that we've always been focused on clients. I think that's part of why we outperform, because we don't have any conflicts, but we've always focused on serving you, the investor, most and doing real diligence because we believe in that. And we, we like, as a company, if you'd like talk to any of us to the side, any of the people that are working new constructs, we believe in our mission. I mean, that's what we care about more than just about anything else. And we deserve your trust. We're on your side. And there's a lot of other firms that are not on your side. They're good at trying to make you think that, but that's what they're best at as opposed to doing it. And none of them can prove it. None of them can prove it like we do. Think about all the free work we give out just to show you how much, how good our work is. We give it out for free because we're trying to help people, help them understand. It's a way to make it accessible. So you can appreciate why we're so good. Whether it's these watch parties, danger zone updates, IPO research. Gosh, IPO research is killing it. I mean, think about Venture Global. I mean, how much is that stock down since it went out, came out of IPO? Huge amount. Like, like almost immediately. I think Kyle joked we haven't seen anything like this since DD Global when that was almost like an immediate 30-40% drop. It's like, yeah. You know, everybody's laughing to the bank, the people that IPO'd at that price, and then just, you know, I mean, they cashed in and took it to the bank. And so the IPO research is extremely valuable. You all should be into that. Like, as, as a pro member, you're going to get access to that very easily. Reverse DCF case studies, e-letters, man, I think these are really good. If you, if there's one, if you have even an ounce of fundamental research in your body, these things would be amazing. I think of them as like every time I write one of these and we put it out there, I feel like I'm, I'm, I'm, I'm giving the market, you know, a shot of B12 or some vitamins. Like, okay, here's some truth. Maybe this can help. This can help because it's just, it's just math. It's very straightforward. And I think we, we do a great job of helping people understand what's really going on, you know, and some of these pieces about the dark pools, you know, I mean, that's, that's helpful too, right? And, you know, these big insiders are always finding ways to do stuff that you can't track. To give them an edge. That's what Wall Street's about. If you haven't seen my trainings, like I talk about it, I was on Wall Street. I was at the top of the mountain on Wall Street at Credit Suisse during the tech bubble. And and I've got friends that have worked at every other firm. It's all the same, man. Wall Street is a rigged game on purpose, and most of that rigging is to take advantage of individual investors. Our long ideas, incredible deep research. Again, I was on Wall Street for for six or seven years, and I helped write or wrote a bunch of. Wall Street reports, and look, I put our stuff up against anything else that's out there. I think it's way better than almost everything else you get out there from Wall Street firms who are going to charge you 20, 30, 40, 100 times more than we do. And then of course there's free trainings like this. We're here to help you, and if we can't demonstrate— if we can demonstrate that any better, please let me know. And if you look, if you know of another firm that's been vetted by Harvard Business School and the Journal of Financial Economics and Ernst Young And MIT Sloan, any one of those or anything comparable, let us know. Because I believe that we have the best research in the world and no one can prove it like we do. And no one's more transparent and no one's out there trying to help people and help people outperform than we are. And if that's wrong, we'd like to know. But we believe that to be true. Kyle, back to you.

Yeah, we can jump in there. Let's see. We'll start with the questions had. We've got a section in the community, if anyone isn't aware, questions for the podcast. Most of the time these will be answered ahead of time, but if you want to jump on, take any of these.

Yeah, I can hit all these really fast. So forecast metrics, if you haven't read this, read this, it's great. This came from someone who watched the reverse DCF case study. Excellent questions. A lot of great answers in there. I think one of the main things to think about when we're doing a reverse DCF model or you're looking at a market implied growth appreciation period rating in our system, and I think I'm going to share my screen on this real fast.

Yeah, if we want to jump into it.

Yeah, hold on a second. I lost the browser and I had a bunch of stuff open. But if we're— if you're talking about ratings and you want to understand what it means, right? You kind of— the reverse CCF model is a complicated and sophisticated product. And one of the things that I like to emphasize is that when we're putting together our default scenarios, right, we'll take consensus revenue where we can get it. And by the way, It only goes out for a couple of years, which is kind of silly because we know that the stock prices for 95% of all stocks out there are looking at cash flows way beyond a couple of years. All right. I don't think anybody would argue with that. But, you know, the market's shortsighted. They don't want you thinking out that far because then you start asking questions that would lead you to us, not them, which is, oh, 10% growth for the next couple of years. How long does it have to maintain 10% growth to justify the stock price? Let's not talk about that. Let's just put it out there. that they're going to grow 10% in the next year. But we also have to come up with forecasts for margins, tax rate, and the balance sheet. And for those, there are no consensus, mainly because we have a different measure of margins than everyone else and taxes and the balance sheet because of all the adjustments we make. Adjustments, by the way, proven to be superior and adding incremental alpha. And so those we— what we do with those is we really just extrapolate historical performance where we can. Now, some companies, when you're looking at thousands of companies, Their historical stuff just doesn't make sense. It's a biotech. It's a small cap. It's like all kinds of crazy stuff. What we try to do is just put out there what's most reasonable based on what's happened in the past. And what that allows our reverse DCF models to do is highlight where the stock price implies a future that deviates meaningfully from what's happened in the past. So, if this is what we're saying the company's going to do, but the stock price implies performance is going to go up to here, Well, we want that to flush out in the valuation. What we see on the screen here. And the same is true on the cheap side. So we're not in the business of trying to predict the future where the company is going to do really well, really bad. We just go with kind of what the company has done in the past, plus consensus estimates. And if the stock price therefore means that it's got to do— it's going to look expensive because the price is implying a meaningfully better future. Well, we want to flesh that out because we think that's important because valuation's all about, okay, well, how's the company going to do compared to what it's done in the past? And then how much better is that? And so that's a big part of what goes into that analysis there. And then I think the other question, Kyle, I lost the slides because I closed down that browser.

Yeah. The second question was on the debt on the stock valuation versus the credit rating.

Oh yes. Market values versus book values. In some places we're using market values, Kara, from the, from the filing, the most recent mark-to-market values. In some cases we're using book value. So in invested capital, we're using book value. In our valuation analysis, we're using market values. And then on Fluor, yep, we, we, we, we made a mistake on that one. You know, it happens. We missed a change, a big, a big, a big adjustment. And, and, you know, and that rarely happens. And it's a little bit embarrassing, but we fixed it and it's back out there and its rating is sort of back to where it was before. And then on Berry Corp, yes. So we've got a bunch of automated systems and Berry Corp didn't sort of pass all the tests and went through the fully automated approach, and that should be fixed pretty soon. So we're figuring out how to do that. This automation where the system will automatically analyze stuff is a new thing for us where it works 100%. So we're kind of managing that. We got to figure out how we're going to manage that with our coverage because we're going to create— we're going to expand coverage. It's going to be data only for people who just want fundamental data, you know, like all the people that pay for XBRL. We want to give them an option. They can get our data at a similar competitive price. It's just going to be way better. And so that just means we're going to be adding a bunch of coverage and we got to think about how that affects primary coverage. And if we put a rating out there, we probably want to maintain that rating.

That's what we're thinking. And then onto topics. I know one of these was actually, I think, a post from you, David, the interesting insight on China. But then we also had some other long form from user Ryan, should I short OpenAI, big tech in China, and then AI national security, super detailed posts on what's going on in the AI tech area with all sorts of details, charts, graphs, trends, what we're, what he's seeing. So great insight from, you know, investors, not just new constructs.

Yeah, I mean, look, I think Ryan has made some amazing posts, and if you haven't checked his stuff out, you need to. He's extremely well-researched, extremely deep. I mean, the community comments are pretty amazing, guys. I think we're going to get into this another slide here in a second, but there's like all kinds of great option strategies. But this, this AI and all that kind of stuff is super cool stuff that, that Ryan's put out there, and he's done a bunch of other great posts. He's kind of a power user in terms of also pointing out how valuable New Constructs is compared to some of these other services and some of the other scams that are out there with respect to 401 plans and stuff like that. Anyway, it's pretty amazing.

Yeah, you mentioned it, so I jumped to the next slide here. Trade slash option discussion, you know, on Many different companies— Workday, Fluor, Allstate, Merck, Hershey, TripAdvisor. Got posts from a professional member who does this and uses our research into some options strategies, trades, you know, posts his thinking, what he's doing, why. It's a great insight into how you can leverage, you know, the fundamental side into that option strategy as well.

Jay, that's an amazing post on that. If you guys haven't seen that, look, if you're not a member of the community, you're missing out. I mean, there's amazing posts, amazing insights, talk about long ideas, short ideas, option strategies, big picture stuff. I think the Gave Cow stuff was fascinating. It's a very different take on China. And it's amazing how many smart people I see with very different takes on China. It's pretty cool. It's very cool. It's very cool. And yeah, I think you're lucky. Look, one of the things you get about New Constructs, which is an important Benefit, complementary benefit byproduct of being, you know, a member and, and access to our research is that you're around other people who care about stuff like this. And, you know, look, I don't know about you, but I think community, community, the people that you work with, that you spend time with, probably, you know, the, the most important decision you make in your life, right? Your, your, your initial and your primary community is your family. Who you choose to be in your family and who you choose to marry and how you raise your kids and all that. Like, is there anything more important than that? Next step is like, who else is in your rest, the rest of your community, your work? And so it's a pretty cool thing to be part of a community like ours.

I think we'll get the replay posted in the community. We'll get the slides posted in there as well of this. You guys can check out that replay hopefully by the end of the day. Usually it's a pretty quick turnaround. But we'll get that out and we'll see you next time on April 11th. And in the meantime, check out the website, publishing a lot of research there. If you have any questions, you can reach us at support@newconstructs.com and you can make any posts in the community. You know, we're always looking there as well, trying to see the conversations that you guys want to have, what's piquing your interest and how it ties into New Constructs research. All right.

Have a great weekend, everybody.