New Constructs' Live Monthly Podcast - 21 Feb 2025

All right, we'll get going here.

Let's do it.

Start it off with a quote from one of David's recent earnings watch parties. Um, when markets move in ways that seem disconnected from reality Astute investors know opportunity abounds. I think picked this one because we'll get into it a little bit later in the podcast today, talking about opportunity and where you can find value in the market right now. So welcome in. This is our monthly podcast. This week, this month, we've got myself, Kyle Guskey, and Lee Manetta Kohler. David is out, but got the question at the top, you know, about astute investors' opportunity. And then the other, how can you make sound investments in this volatile market? So we've got sort of the topic that we're going through. Start with the disclosures, disclaimers. We're not giving out any advice. We are publishing research. You can read these, they'll be available in the replay as well. But with that, we'll get into the agenda. Got a ton of stuff on the slide here. One quick note, our next monthly podcast will be March 21st. But as far as what we've gone through since the last time we talked, or at least, at least talked in this setting. So we've had a lot of videos and trainings going on that hopefully you guys have been signing up for and attending. Listen to David. I've been on a few of them talking about all sorts of things. So since this last podcast, we had a couple long idea updates, a new long idea that actually came out just this week. David's done a bunch of reverse DCF case studies on different companies, looking at quantum computing, the RMBS company, looking at Amazon's valuation. And what is implied in its current stock price. That one's interesting because as it says there, market thinks Amazon will rule the world. They've got to grow revenues massive levels. And he puts some— he quantifies, you know, just how high they need to grow revenues in order to justify the current stock price. Got style ratings that came out, best and worst ETFs and mutual funds by sector and style. Those are some awesome reports that are also available for free. You can see kind of the best and worst mutual funds, ETFs based on all 11 sectors, all 12 styles. Updates on some model portfolio performance. We've got our performance from 2024 published. Everyone can check that out. And then we also published quite a few model portfolios and featured stock picks since the last time we've talked. Today, we've got to talk about some special webinars and trainings we've recently done, some new features, IPO coverage. Go out to some posts on the community, some trade discussions, and then at the end we'll look at some of your stock picks if we've got time. That's only a live-only thing. It'll be cut out from the replay as a thank you guys for joining us here. So if you have any companies you want us to take a look at, throw those in the chat and we can look at those at the end. Um, but without further ado, I'm going to move on and throw it over to the next slide here, talking about the golden metric advantage. I'm talking about where to find value in the current market. This was a training we just did yesterday. David presented it, you know, our secret weapon to find undervalued stocks missed by Wall Street. If you saw our emails on this topic last time, it was the super stocks. We highlighted them back in September of last year based on some backtested data, you know, the golden metric being economic earnings greater than GAAP earnings and a stock earning a very attractive rating or very attractive or attractive rating. And the results have been great. And so we wanted to come back and, you know, Re-offer it to everyone. We've got a replay on it, and we've brought Lee on here as well to kind of give behind the scenes of how we put this together, um, and sort of what goes on behind the scenes with the, the ratings and how we can optimize those.

Thanks, pal. Yeah, we've, you know, we've had our rating system around for, for 20 years now, and we've made small improvements to it over time. As an analyst team, we're always looking for ways to improve the rating system. And whenever we came across the economic earnings greater than reported earnings metric recently, you know, in September of last year, we realized that it was doing such a great job of picking stocks in this market that we wanted to get it out to customers as quickly as possible. That's why we put together that promo that we did in September. We'd never done anything like that before. And it's one of our attempts at trying to get this stuff into the hands of our customers as quickly as possible. And it performed great, performed like we thought it would, and we decided we should do it again. We are in a time now where we're going to talk about this in a minute, but we're heading into right at the beginning of annual filing season. And that's the time whenever we get the most information about companies. We have the best look at what their profitability really looks like. our best ability to confirm and compare economic earnings versus reported earnings. So we thought this was a perfect time for us to put out another bundle like this for customers. I think this is a great way to find excellent investment opportunities.

Thank you. Yeah, as we talked about yesterday in the training, you know, it's the way to combine both high-quality earnings with that economic earnings being greater than reported earnings. But then when we pair it with the overall rating, you also know that they are undervalued stocks as well, which is becoming increasingly hard to find.

That's right.

I think we looked at, you know, our overall ratings, you know, 13 to 15% get attractive or very attractive ratings. And then when you layer on this economic earnings greater than accounting earnings, the number shrinks even more. And so it's a good way to find high-quality stocks in a market that has few and few of them. On the other training sessions we did recently, David hosted a Let's Talk Long Ideas For pro and higher members, that's available in the community. And we wanted to bring attention to the earnings watch parties that we've— he's been putting on. Yeah, these are great. Something we started doing just, you know, this earnings season. We've always looked at earnings when we get 10-Qs and 10-Ks, but this time we wanted to actually look at, you know, as the earnings come in live, what the headlines say, what our model shows, you know, from the prior quarters, you know, are profits overstated, understated, in line? And then see what it means for the valuation of those companies. So David's been looking at, you know, a bunch of names here, Apple, Alphabet, Qualcomm, Disney, all the way down to yesterday's Walmart, Carvana. So if you haven't checked these out, definitely take a look at them. They're on our site in the free training section category, and then also in the community under the podcasts and replays section. We've got, you know, some range from 20 to 30 minutes. So you can take a look at, you know, how we're looking at earnings. Obviously, the headline numbers aren't always what they seem. A lot of times you got to wait until we get those filings. But in real time, we can see what kind of the market reaction is, and then what that implies for the valuation of the companies.

Yeah, if you want to get it, this is— these are a great opportunity to pick David's brain and see how he thinks and how New Constructs thinks about earnings and profitability. This is an excellent way to understand just exactly what it is that New Constructs is doing. So I really recommend them. I know there's a lot of them here. I think they're all good, but if you can just listen to one, I think you, you can learn quite a bit about how we think.

And on that note, we also want to point out, people always ask where they can find the reverse DCF case studies, which a lot of the earnings replays is exactly that. It's got David going through the reverse DCF model, but oftentimes we'll do these replays or videos or trainings and we'll pull out just a piece of one of those training calls and say, you know, like recently we did with Amazon or the quantum computing section, we'll do a quick video. People can look exactly at the reverse DCF and how to apply that expectations investing. So we wanted to point out here, if you're not already aware, you can find them in that reverse DCF case studies section of the community. That resource is available to everyone that's a community member. So if you're not, definitely want to sign up there. You can access those replay videos. And a whole bunch of other stuff. And there's that podcast and replays. You can find all the full-length earnings watches, but the reverse DCF case studies are quicker, more tuned into one stock, and really give a deep dive on how our DCF model works. I wanted to point those out to everyone. Moving on though, do have to talk about IPO coverage. We've always looked at IPOs. A lot of them don't look great, but we've actually Added quite a few. Lee, if you wanted to add on here.

Sure. Yeah. I mean, last year was a pretty slow year, a very slow year for IPOs. I think that New Constructs is pretty unique in that we cover companies that are IPOing in their pre-IPO period. They're required to file something called an S-1 with the SEC, which is a prospectus that gives you an idea about what the investment is going to look like. It usually gives 2 years of history, so it's enough for us to be able to put together a reasonable model. with some free cash flow measures as well since we've got 2 periods. But it was a pretty slow year. We didn't really have a lot to talk about. But this year already we've seen 12 reasonably sized IPOs. I think that last one, SanDisk, is actually a spinoff, but there's some pretty big IPOs on here. That Venture Global IPO was potentially going to be one of the largest IPOs in history. It ended up being about half that size. So as you can see, the market continues to be very hungry for IPOs, and it makes a lot of sense why companies would IPO in this kind of frothy valuation situation. They love big valuations for IPOing. So this is a great way to look at these models in our ratings and get an idea about what these IPOs actually look like. Many, most IPOs are bad deals for investors. They're just opportunities for institutional investors and insiders to offload onto the market. So not always the best investment.

Looking at these, there's definitely more, um, okay companies, bad stocks than we've seen in the past. A lot of times we were looking at, you know, the DoorDashes and the WeWork-type IPOs. It was bad companies at crazy overvalued, uh, stock prices. Here, at least we're seeing some of these companies that are actual businesses, um, yeah, actually making money.

Yeah, positive cash flow. I agree, I agree. These are— these are— I was hopeful that we were going to find something really interesting and good, I worry sometimes that we're always so negative about IPOs that people think we just don't like any of them. That's not true. I think that's— it's just a particular situation where valuation often gets out of hand. But you're right, Kyle, we've seen more profitability in IPOs this year than we have in the past.

Yeah, which is a welcome change.

Yes, absolutely.

Beyond IPOs though, I think we're coming up on the Big fun filing season.

That's right. Filing season is upon us.

A little bit about that.

Yeah. So we get 10-Ks, annual filings for about 3 quarters of the companies under our coverage universe. It starts, started, really started maybe at the end of last week, beginning of this week. Last year, for example, we parsed around 2,300 annual filings and collected 250,000, 263,000 data points and made Almost 40,000 adjustments to the reported financials. Those adjustments that we make are taking information from the management discussion and from the notes and using that critical information to make adjustments to the reported values to the tune of $20 trillion last year. We are already on track to make— be making similar amounts of adjustments this year. Again, we're just getting started. But this is the annual filing, is the filing that we get that has the most information about what's happening at the company. Quarterly filings are great as an update, but quarterly filings are generally from 25 to 50 pages, and these annual reports are around 250 pages on average. So there's just an enormously larger amount of information, and we can build the most complete version of our model possible. Right now. So if you want to pay attention to things like this, you know, the, the promo that we've got going on right now, this is an opportunity for us to pick out the best possible stocks at the best time of the year to be paying attention, doing diligence on reported fundamentals. And our analyst team will be very busy working, working to get this stuff out to you.

Yeah.

Heavily assisted by technology, of course, but Yeah.

Do you know, like, the average turnaround? I think it's— we're right at like 1 day, right?

Yeah.

Once we get the filing.

That's right.

Yes. We're getting it out as quick as possible to update.

Yeah. So as long as the SEC keeps giving us filings, we'll keep processing them and getting them out to, to all of you.

Perfect. With that, we'll move into community headlines, what you guys have asked questions about. If anyone has any other questions, you know, throw them into the chat here. We can get those at the end as well, or as they come if it's something we're talking about here. But did want to pull out one question that had a member post in the community. Do you pay attention to the adjusted earnings and/or adjusted EBITDA when we're comparing economic or GAAP earnings? David, actually, this was his answer in the community. The short answer and the long answer is no. Adjusted earnings, you know, basically move you further away from what you should be looking at. Companies often make those adjustments to better their numbers or their own, you know, executive compensation metrics. And we've seen many times where executives are incentivized to achieve a specific adjusted EBITDA number. And then you look at what that adjustment is, and it's an expense that is very close to an operating expense, or, you know, already is an operating expense, but they're moving it out because they want to call it one time. And so we look at, you know, the adjusted numbers as management's way to sort of position their company in the best light. So we're not actually looking at those. We're going and making our own adjustments on what is actually operating, non-operating, recurring, non-recurring.

That's right. Yeah, I mean, there's— there are effectively no rules around, or no standardized rules around, what companies can call, include, and exclude from their adjusted earnings or adjusted EBITDA. So it's even harder to understand whether or not those numbers are reliable compared to reported earnings, because what you really need is a consistent and accurate way to measure profitability, something like new constructs economic earnings. So, you know, the adjusted numbers, like David says here, are really just a further distraction. They're not even reliably the same methodology between periods, so there's no great reason to trust them.

Yeah, to your point, the comparability— adjusted EBITDA at one company does not mean the same thing at another company. It's true that adjusted number does a lot of heavy lifting. And so we've got— we'll make these slides available when we do the replay, but there is an education page here that you can actually get this link that we go into detail about the pitfalls and shortcomings of adjusted EBITDA and other adjusted numbers. And so you can read that when we get these slides out. Another post I wanted to pull out, and it's actually the Stock Tracker 50 Practical Tips. For anyone that is currently Stock Tracker 50, new or existing, or looking at Stock Tracker 50, this was a nice post here. Um, open it up here, that from a new member, or, you know, been recently using it, with a lot of comments here on how other users are using Stock Tracker 50, whether it's for, you know, tracking, or if it's looking at specific ratings on companies that they found from elsewhere. So there's a lot of good comments here on exactly how you might be able to use Stock Tracker 50. So we wanted to make sure people saw that. Or if you have any other ways that you're currently using Stock Tracker 50, definitely come in here and add them in. Um, the community is sharing ideas. We all learn something. We can all improve upon it as well. I just wanted to quickly point that one out.

Yeah, I would also say that now is a great time to make sure that you've got the stocks that you're interested added to your portfolio and that you have the email alerts turned on for rating changes.

Yeah, that would be the best way to get those updates, you know, in real time.

Yeah, for filings in particular.

See a question here. Is there a limit on the number of changes we can make in our Stock Tracker 50 portfolio? I believe the answer is no, you can only— but you can only keep 50 at any one time. So if you've got a portfolio full of 50 stocks, you'll have to remove one to add another one. But you can remove those as you want to get ratings. And then again, with those ratings alert updates, whatever's in your portfolio is what you'll get alerts on.

Correct. I see another question here in the Q&A section about Ticker FLR. It says— the question says that it went from very unattractive to very attractive. How often does that happen? The answer is extremely rarely. I don't think there were any examples of that last year. For example, we were just looking at that kind of data recently. I think that's a not usual situation by any stretch of the imagination.

Let me jump back to the slides here and The next posts, if you haven't seen these, I thought one of the top ones here, Secret Golden Share for Chinese Companies: What Are They? More Importantly, Are They Real? This was a post David actually got from, you know, he added in some information, but interesting discussion here just on whether this, you know, idea of the golden shares for Chinese companies where, you know, the government has a golden, you know, overarching share of all Chinese companies, you know, whether it's real, whether it's not. Some great discussion on this. And then also one of our analysts, Garrett, put in a lot of background on what he was able to find through some filings. You know, what we're seeing in the— whether companies disclose it at all, whether they talk about it. And so definitely something to look at in regards to, you know, investing in those Chinese companies. That's kind of what spurred this was, you know, if you've got Chinese companies that you aren't sure about the financials to begin with, and then you've got a golden share ownership that can kind of make decisions whenever they please. How would that impact that? A lot of good discussion here, some great details, um, on what goes into that and what we're seeing in the filings. Um, and the other one I wanted to point out was the DeepSeek is a wake-up call. Um, this was actually a link to an article David put together on our website. Um, and while some of the DeepSeek claims have maybe been debunked already, or at least require further investigation, it was overall just a wake-up call for valuation of Nvidia, these hype stocks, as we're calling them here, because they were priced for, you know, almost beyond monopoly levels of, you know, revenues, profits, you know, they have to be the one and only company that can achieve anything with AI or anything with chips and stuff. And so it was, well, the company might— DeepSeek might not be what ends up overtaking Nvidia or anything. It was more just a reminder that, hey, we've got to look at valuation. You know, these companies can't just go up forever. based on future that they're going to be the only company because very rarely is one company the only company that ends up winning in an industry, especially as cutthroat, competitive, and profitable as tech. There's going to be many competitors that say, hey, if Nvidia can do it for X, we'll try to do it for Y and see what we can get. Even if I think the market appreciates that, that could be huge.

Yeah. I was going to say, I think that the market appreciates that too. We saw how fast Nvidia moved whenever they DeepSeek news came out. So people don't need a lot of evidence necessarily for the stock price on these things to move because I think it's a pretty believable result that there's going to be competition if there's a lot of profit. Again, it might not be DeepSeek, but like people aren't sitting around letting Nvidia take over the world. It's not going to happen.

At least not without a fight, right?

Yeah.

Last thing. Before we get into some of the— any other questions or stock pick requests, um, I wanted to point out we've got some trade discussions. I think these are mainly from John on the community, but some great ideas, um, behind his, his methodology and how he's using new constructs to trade options, trade different straddles and option strategies as well, with details. Most of them you're going to find in line here with the general discussions. We had a new one just this morning, him and hers. And so it's another way. Well, we're not options experts. Um, you know, we can, our community can fill in, you know, their expertise, their experience, how they're using new constructs. Um, so if you're interested in those kinds of things, you can definitely add, um, anything you might see there or read John, just, you know, make your own decisions based on that, but some other ways to use new constructs research. With that, that was the main things, you know, in the community. We've got, you know, general discussions. If you ever have any questions, you can put them in here. That's where we got that adjusted EBITDA question. But with that, I will go to the stock pick portion. We'll look at some ideas here. Let me open up the chat. Let's see, got any questions? Is there an easy button to remove all the tickers in the Stock Tracker 50? I don't think you can delete them all at once. You will have to remove the ones you want in and out of the portfolio there, but—

And make a feature request for a button like that and get that over to the website team.

We can see if they can add something like that, a delete all. But if no other questions, we thank you guys for being here today and we'll see you next time. Like I said, March 21st will be the next one. Sign up for the community, definitely head out there and get that signup in and you can access all the content we talked about today and also ask your own questions. Post your own topics and get, you know, discussion going with us, our analysts, community members, all of us combined.

So have a good weekend, everyone.