October 24th Earnings Watch Party: Netflix, Tesla, and More!

Hello friends. Good to see everybody. Thanks for logging in. It's been an exciting day. Markets today are looking pretty good, looking really good. And look, they've been looking really good for a long time. It looks like nothing can stop this, this, this market. And maybe nothing will. It does for sure seem though that it's not as easy to pick stocks as it once was. We've seen some return of meme stocks. We've also seen those meme stocks get crushed. But let's go, let's have a party, earnings watch party. Welcome to our October 24th earnings watch party. We are going to talk about Netflix, Tesla, some of the biggest names in the business, GM, GE, IBM. Lockheed Martin, Intel. Let's just jump right into it here. We are not advisors. We are not investment advisors. We're not tax advisors. We are publishers of research. Let me know if this is the first time with us, what kind of investor you are, and maybe if we have time at the end, we will take a few requests for tickers to talk about. With that, let's get going here. Let's talk about some quick headlines. I mean, look, big mega-cap hype stocks miss— Netflix and Tesla. Anybody know what our earnings distortion score was for Netflix and Tesla? Miss and strong miss. So we saw that one coming. On the other hand, we've got certain stocks like GM kind of turning the tables here, doing really well. Tesla's business going down, GM's business doing better. Traditional giants beating expectations. GE, Coke, IBM, LMT, you know, the old school stocks are doing pretty well here compared to the hype stocks. And then the on the wireless front, some interesting turn of events there too. AT&T showing some strength, and again we got a meme stock coming back. It's crazy. It's a very exciting time of the year, and look, it's a critical time. I think for people to be smart about their portfolios. I think the market, as it is sort of cresting this peak over and over, I feel like it gets a little more discerning. We don't just throw money at everything, and even the meme stocks, when they have their meme experience, that meme run seems to be a bit shorter, a little more violent on the way up, and. on the way down. October is a crazy time. It's a very, very difficult time, typically very volatile time, the most volatile of the year by a long shot. And look, this is the kind of environment where the difference between winners and losers is a big deal. That's what volatility means. Volatility is a euphemism for stocks tend to go down a lot. As a friend of mine who was a hedge fund manager a long time ago said to me, he said, David, in a bad market, the beta is 1. Everything goes down. But I'm not here just to scare everybody. I've got some good news too. Look, the research that drives everything we do at New Constructs with respect to footnotes and a superior measure of profitability, it's proving to be very effective. And by effective, I mean generating alpha for clients. And there's no better way to measure that than in a live-traded index. Our Core Earnings Leaders Index Live traded, run by Bloomberg, was up 26.3% while the S&P 500 was up just 17.5%. So we're talking about a 9% difference, 9% outperformance versus the S&P in our first year. We think that's impressive. The outperformance proves without a doubt that superior, unconflicted fundamental data straight from the filings Beats Wall Street's and headline-driven narratives. I want to take a minute here to talk about beating the market. It doesn't happen very often. It's extremely difficult. The good news is that when you do it, it's mathematical, it's quantitative. Nobody can say, oh, you didn't really win. There is no subjectivity. You don't need any slow motion. Either the numbers are better or they're not. And when they're better by as much as ours are, It's time to pay attention. That's extremely good performance in what is a freakishly bullish and overvalued market, I would say. And keep in mind that we're also number 1 ranked on SumZero, which is a buy-side-only community. We've been— our work has been vetted by MIT, Ernst Young, Harvard Business School, and the other indices that we have out there also are strongly outperforming. So if you like our ratings, well, guess what? They beat the S&P by 52% over the last 5 years. The core earnings weighted S&P 500 index beating the S&P by 1% year to date. This is just taking the S&P 500 and weighting it based on core earnings as opposed to market cap. Not a big deal in terms of overall different methodology, but a very big deal in terms of the intelligence around how you want to weight the stocks. It only takes a little bit of intelligence to make a big difference. And that's what New Constructs is about. It's sometimes simple, easy to downplay what it is we do, but it is extremely sophisticated. So those indices are, are not available to the public, but they are available in our research. And we think you need better research because finding good stocks is not easy. Finding that incremental edge, that incremental intelligence is not easy. It's very rare. Yeah. Getting into some of these other stats, look, it's really good to see our stuff do so well, especially in a market where everything is going up. And it's difficult to outperform, but it's possible with the right kind of research. The point is, you can't really trust research you get from Wall Street, right? You're getting misguided. And too many investors are very vulnerable right now because they've been following along with what's been popular. The truth is, to get the right information to make intelligent decisions, you need to find data that's buried deep in filings. Why is it buried deep? Because it's hard. Wall Street doesn't want you to know about it. Wall Street wants to be able to sell you Beyond Meat, Peloton, Open, tons of junk stocks because they make money selling stock. And we're talking about when we're saying buried, that's thousands and thousands of pages. Wall Street doesn't want you to know because they make money by you buying stock. They make money from investment bankers. They don't make money from the research people. It's a huge conflict of interest and it's been going on for years. It's also a big opportunity for you to turn the tables on them because you don't have to— you don't have to play that game. Wall Street analysts have to write favorable research. They have to blow up the numbers in order to keep their job because they have to maintain, hold, and buy ratings. If they don't, they get fired. You don't have to please the bankers. You just need to look out for yourself. And you get to use real research that Wall Street analysts cannot use, or they get fired. That's the secret Wall Street's keeping from you. And that's why we are here to give you fairer footing with these Wall Street insiders. Here we go. You can see here, 96% of stocks are all buy or hold rated. All right, that's some bias. All right, is that even statistically possible in a market that's supposed to be somewhat efficient? They're doing it because they got to please the bankers. Do you know how many companies are going to be willing to say, hey, JP Morgan, will you be my investment banker? Even though your analyst says bad things about my company, they don't have a buy rating, I still want to give you my money. When they've got Goldman Sachs and all these other firms out there saying, oh, hey company, you're so great, we have a buy rating on your stock no matter what, we love you, you're the best. Will you be— will you let us be your investment banker? I mean, that's what they're used to. It's been, it's been like that for, you know, for decades. And I know for a fact, because I was on Wall Street and I've been in these meetings, and then I've since had calls from senior people at large companies saying, how do you dare have a negative rating on my company? We're going to sue you. You said something wrong about our numbers. I'm like, no, I didn't. I found this on page 274 of the 10-K. Let's go. Let's go to court. I'll bring the 10-K. And they go quiet. So that's the mentality. We don't have any conflicts, and it's evidenced, you know, in the fact that we have so few highly rated stocks. The gap earnings tricks— these are things that have been going on for years. So let's go, let's talk about some stocks here. Let's get into the meat of this. Our earnings watch, October 4th. Let's go with Tesla. All right, strong miss rating. We got a new forecast put in. We are going to be getting a new 10-Q any day now, and that will potentially— that will update our earnings distortion score. Will the earnings distortion score change? Probably not. But these guys have been in the business of overstating earnings for a long time. Not surprised to see a miss. I mean, I think they're just running out of tricks to boost the business. You know, the reports I heard on the call about Tesla and what's going on is it's all he can do Elon Musk to, I mean, he's talking about everything. He's talking about robots now. I mean, Optimus, all this stuff is just all hype and unrelated to the business. Unrelated to the business. Unrelated to the car business. So that's, that's, I know that is what it is. This has been a bad business for a long time. We've written many reports. You can see here, we've talked about it. Doesn't matter because we are in a world where sometimes hype matters more than substance, but someday I think it probably will matter. Netflix, good company, bad stock. But we just updated this guy yesterday. So before the Q came out, we had a miss rating. I can show you that. This was from, did that on October 22nd. So yeah, we had a strong miss on that. You get the idea. It's updated. So it looks like the earnings were a little cleaner. And look, this is a stock that's got a lot of, it's got a lot of hype in it. I mean, these are really expensive numbers. And we pointed out for a long time, we thought that the valuation for Netflix is way too high. And look, it's been a great business. They found a way to effectively— they burned a ton and ton of cash flow for many, many, many, many, many years. They used capital as a weapon. They were able to operate as an irrational business for long enough to get enough scale to actually make some money. And the valuation is great. It's great. I think it's a great success story. It's a modern Very modern success story where we've got so much cash and private equity that people can literally just burn billions and billions to make a business work. Capital is a weapon. But yeah, this is still an expensive stock and the expectations are super high. We've done the work on this before. I mean, check this out. This is from almost a year ago. If you read this article, you'll get a sense of just what kind of dramatic performance in terms of the future profitability of the business the company's got to achieve. You can see here, these are the implied revenue. This is some reverse DCF stuff that we've done before. Very cool. All right, GE. So we've just suspended these guys because the disclosures are not as good as they once were. It's harder for us to distinguish the financial business from the industrial business. And so when disclosure goes down, we don't like that. New. Forecast here as of a couple days ago, probably a new rating. I don't remember what it was. If we go take a look at earnings distortion over time, it looks like it's much worse over the last year. But from the TTM here, yeah, we'd have to look at this on a quarterly basis. We're thinking about opening— improving these or changing these charts to be TTM by quarter. I think that would be cool with more detail. So GE, you know, look, Decent company, not so good company, bad stock. Tops earnings estimates. Yeah. Yeah. But guess what? Nobody cares. I think this is probably a really good, really good example of where estimates may have been lower to the point that it was an easy beat. So no news. Coca-Cola. Good company, medium expensive stock. So better opportunity there. Love for this to get cheap. We'd like to buy this guy again and put it on the long list, but they had a nice beat. You see the stock came up, but back down a little bit. Not a huge beat, but you know a stock that that we would love to keep on our radar as a as a as a potentially good long idea if it could get cheap enough. But it's not there yet. IBM, here's a turnaround story. Great beat by them. I mean, they really turned about round in the you know the last few years. You can see economic earnings actually stay kind of flat. If we went back farther, I think we'd see a lot worse net income kind of going all over the place. But economic earnings on the rise, return on invested capital. You know, the ROTIC or return on tangible invested capital is looking a lot better. Return on invested capital otherwise looking pretty flat, but positive and rising economic earnings. Even if I guess economic earnings aren't rising, that's a pretty good jump from 249 to 320. So I think the scale here on the, on the net income is kind of maybe, maybe dwarfing the, the changes for economic earnings because you've seen a big downfall and then they flatten it out and they bring it back a little bit. So IBM doing pretty well. Good for them. Good for them. How about T-Mobile? What happened with T-Mobile? This is all about like who's running the best deal to get people to join. And so it's like promotion after promotion. I think they look— looks like they got them at a miss based on the way the stock moved. It's decently expensive, profitability doing better. We're about to get a new Q here, so all this could change, but not quite like AT&T. AT&T not doing as well profitability, but very cheap. I know a lot of people own this guy for the dividend. It's, it's got low expectations for future performance. And profitability potentially with the nice beat we saw here recently, strong 3rd quarter performance. Maybe we're going to see some profitability improvements. Maybe we're going to see some profitability improvements as their promotions have been going well. Intel, talk about another turnaround. So we've got a strong beat here, a lot of noise in the Intel data recently, a lot of write-downs and a lot of unusual charges. So I'm guessing that's why earnings distortion. Is so sort of negative, right? When core earnings are better than net income, that's a good thing. So I think we were right on in calling the beat here. They had a low. It was easy to beat because estimates were knocked down, and you're seeing the stock react quite accordingly, right? It's a pretty good number. Impressive for IBM, and that's kind of an interesting turnaround. This is a business that has you know been struggling for a while. Well, I'm sorry, Intel. Intel's been struggling for a while. All these different stocks. I stocks get me messed up. Intel, let's see. Yeah, I mean, it did okay. It did okay. So I think when you've had as much noise as what they've had in their numbers, great. But also, it's still looking really expensive. They've got some turnaround that's happened, but you can see here, you know, a bit, bit better than what's expected or compared to net income, but still not too good, folks. Pretty big downturn here. We've got a ways to go to get back. Same is true with return on capital, a ways to go to get back. Still looking at really low returns on capital and still quite a strong turnaround already priced in. If we were to run the reverse DCF on this thing, we'd probably see a hockey stick for future NOPAT as implied by the stock price. Lockheed Martin. So I think these guys had a beat— I'm sorry, had a miss. Yeah, and the stock got hit. We're scratching our head on this one. We like this stock. We think it's the best defense stock. Strong profitability, relatively cheap valuation compared to other defense stocks. It's really cheap. So we're sort of surprised just to see them not do that well. We thought that the, the tailwinds on the demand— the defense stocks were, were really good here given the state of affairs in the world and the, the wars going on and then Europe really needing to step up their spending. We didn't think they were going to be able to source that entirely from all other— entirely from their own local defense companies because a lot of these companies in Europe or countries in Europe don't have any defense companies. So we thought that would be pretty bullish across the board. So we'll have to see. Let's keep an eye on this one. It didn't do so great this quarter. Still getting an attractive rating. GM. This is one we've been long about for a long time. We had a beat score here. Of course, that, that may have been, may not have been the case. Core earnings have been quite a bit better for these guys for a while. So I'm guessing the beat was in place for a while. And if we look at GM, they had a strong beat and the stock's done pretty darn well. And we've been bullish on this guy for a long time. You know, we think, look, they've been smarter about capital allocation. They, they were forced to put a lot of money into EV. They've now got to like take some of that out. That's the way it is. But at least they can pretty easily convert that over to existing ICE production and hybrid production. And really hybrid is probably where it's going. And the whole EV movement was a bit overblown because we had one of the greatest hype masters of all time pushing it. And, and these guys are well positioned. You know, really strong cash flow, really strong profits, still cheap valuation. Never been a really high return on capital business. Always going to be cyclical. So you're never going to see crazy numbers here. But the green here keeps it attractive. Deckers. This came in as a request late last night. I throw it in here. I think this is a good company. Still not too expensive. Not too bad. How do they come in with their report? Got crushed here. It looks like a big miss. Big miss. Big miss. Short of expectations and bad guidance. Yep. And even after all this price decline, it's still looking fairly expensive. So this is still attractive. And you might want to be thinking about picking up some ownership here given the recent pullback. But, you know, this is— anyway, doesn't jump out as great, right? It's a good attractive rating. This looks great. But, you know, I'd rather have all dark green, no yellows on the valuation side. Anytime we get into yellow on the valuation side, I feel like we're treading on thin ice just because we're in a market that could in a really short amount of time get blown up. How about Beyond Meat? Okay, I just got to bring this up. So going to go bankrupt unless they can sell stock into this rally. You can see here, got down to $0.50 a share. We got this crazy volume. It's all nutty. Makes no sense. It's a bad business. I think the deal with Walmart's probably going to be a money loser. Walmart did not give them the shelf space for free. They paid for the shelf space. If they can't sell enough of their fake meat, then they're going to lose money on that deal. Walmart's taking— not taking any risk on behalf of Beyond Meat. They never do. Anyone who's ever worked with Walmart— had a bunch of friends that were in a business that did a bunch of— that did a bunch of business with Walmart, and Walmart was like so hard to deal with because they have so much Distribution power, and they know you need it. And so they, they extract and they take advantage of that advantage all the time. So there's no way they like— this is like going to save Beyond Meat. I don't think Walmart shoppers are the people that are going to be the ones lining up to buy fake meat. So I don't think it's a great fit. Good headline can help play the meme movement for a while where some big insiders and high-frequency traders can front-run and make a lot of money in a short amount of time. And I just hope that none of you and no other unsuspecting individual investors are out there really getting played in this, in this way. So if you are interested in, in, in earnings and want to know more about how to get access to our earnings predictions, I want to make sure you know about a special offer that we have been running right now. It is called our Power Pack, and it is a special limited time offer to get access if you buy now. We've got 5 stocks that we expect to— 9 stocks total that we expect to beat or miss. And we are also— so we're selling those 4 stocks likely to beat, 5 stocks likely to miss. We're in the part of earnings season where there's just not, not that many left. These are special, special picks. That you can use to avoid getting blown up or hopefully making some money by being ahead of the trend. Included in this power pack is access to our most attractive and most dangerous stocks model portfolios. You can see their long-term track records are great. I'm going to put this link into the chat. You guys can take a look and we hope that you sign up because it's a really, really special deal. We're giving away a lot of research at a super low price compared to what they normally cost. We're talking. You know, 60%, 70% off the normal price. You can see here. Okay, thanks very much. If we don't have any other questions, I will sign off. I appreciate you being with me today, and we hope you have a great weekend.