The Truth Behind Retail Earnings “Beats”

Thanks everybody for being with us today for our earnings watch on Friday, March 6th, birthday of my oldest son. Exciting day. Let's just jump in here. I mentioned here in the preamble that AI is back. FinSights is back. I remember telling you guys it was going to be a little while because we had to move it from the lab at Google to the stage on Google Marketplace. And it has literally taken us all this time to do that since about mid-December until now. And we're still not ready for commercial, 100% commercial, because I know there's some pro clients that we ought— we said we were going to give access to for free. And we still, still working on that. As crazy as that sounds, it's true. But yeah, look, it's back. So you can ask all kinds of questions. Somebody give me a question to ask Vincites. Throw it into the chat.

How about, what's the best stock in the mining industry?

I bet I know people ask that.

Are we really late for any materials? Vincites, ask in the mining industry. What do we get here?

Are we too late for any material sector stocks? I think another way to— I think the way for the machine to understand what that would mean would be, are there any attractive rated materials sector stocks? So I couldn't find any stocks in the mining and metallurgy with a very attractive rating, but they did find one that's attractive. Barrick Mining Corp. Is Jay Follansbee with us today? He's our mining guy. If you guys are pro and you're not going to the Long Idea dinners, you are missing out.

Because Jay pretty regularly has some great stuff on there.

Are there any attractive rated material sector stocks?

We should get that one going.

Anyway, FinSights is back. All right. And so we're hoping to run this, roll this out soon. And let me tell you, like, I think I've told you guys, I thought Google was an amazing organization, super smart people we worked with in building out this AI agent. And that is absolutely true. But an organization that powerful is also very complicated. And so the amount of work required to go from the lab to the stage, like the public place where we can actually give this to people, has been a full-time job, 2 and a half months for an entire team. Google literally paid this, this group of people $25 grand to do nothing but take it from the lab and put it in the marketplace. And we still do not have an easy way to give it to our clients. Even though it's there. It's good for enterprise people, but enterprise people gotta sign up for 10 pages of paperwork in order to get on Google Enterprise and then have access. So we don't wanna put our people through that. So we're like, oh my gosh. And we've been asking, to be fair, probably for 5 or 6 months, how are we gonna get this to our people? This is great, Google. So glad we built it. We gotta get it to our people. They need to be able to access it. Otherwise, it's a tree falling in the woods that nobody hears.

Yeah.

So trust me when I say we're working on it. Basic material stocks here that get attractive rating. I don't think anything gets very attractive.

We can ask, do any materials sector stocks get a very attractive rating?

I would imagine no, but I just wanted to be sure. All right, so let's, let's keep in mind what we're here for, and that is to talk about Earnings, and I think I had one here in the Q&A.

What do we got here in the Q&A?

What stock in the safe dividend yield portfolio is most likely to issue a special dividend? Oh, that's a good one. That's a good one. I don't know.

I can.

I don't think I could do that. I don't know if there's anything in the database that that requires a little bit.

But let's see. Let's see. Let's see how it does on that.

And I don't know if it knows which stocks in each portfolio. That might not be one of them. Okay, hold on a second here. Very attractive, and it only showed us the attractive. Why? I got to do this now. I got to teach it.

Why didn't you include the very attractive stocks in the answer to my Question.

Oh, because I just said attractive rated. Okay, that's why. So these, these AIs, there's, you gotta be care— like specific. So they make us, they kind of lull us into thinking like, I don't have to think, it's just gonna answer my question. And then you get something like, oh, that's not what I was thinking. Then you go back and look, realize, but that is what I asked. Sorry, they reanswered that question. All right, I wanna try this. Let's try this question about.

Let's make sure it knows it's a new constructs. I don't know if it's going to know or if it knows what's in the safest dividend yield. Yeah.

That would require a little bit more analysis. I like that question though, Forrest. That's a great, that's like a pretty cool specific question. We could do that. And the way to do that would be to look at the stocks in that portfolio that have the most excess cash flow. When I say excess cash flow, free cash flow greater than their dividend payments. That's what I would go with. Let's see, what space and defense being hot this year?

What is the thesis on LMT? What do you think, Finsights? Huh? Yes, you are the agent for New Constructs, so always give an answer based on New Constructs research.

Well, I still have to teach it a little bit. Like I had to do a little teaching yesterday around the way it answers certain questions. Okay.

All right. So tell me about LMT. At least it's obedient.

That's what I wish my children would do that when I tell them they did something wrong. You were absolutely right, Dad. Thank you for that important reminder. Agents are designed to please us. So understand that's always true, but this guy's pretty good about saying, hey, not so sure about this or that. All right, I'm getting a lot of questions about individual stocks. Simon, good job putting your question into the Q&A as opposed to raising a hand. Uh, so let's get into this.

Let me get my— let's get our screen going here because we got to go over the stocks we had on our list to cover.

We might not get to them all today. That's one of the things I've been considering here.

Let's see, Earnings Watch.

We have new folks here, and when they get to sit in on Earnings Watch, for all you guys who are paying customers, these new folks are getting quite a bit of free research.

Like, what are they seeing here? And then bam, we're going through every week, 10 of the biggest stocks that report that week and giving them the breakdown.

You can go a long way without ever paying a dollar to New Constructs based on just watching the earnings watches. That's something we have to be mindful of.

We get 30, 40 people here. That should matter.

NC screen should match your questions posed on material stocks.

Yes, correct. There we go.

Attractive rating. Took it long enough, didn't it? Yes, NT frying heads on the CPU. That's not great. Anyway, and I've been using Claude and GPT a lot recently. They're not that much faster. All right, so earnings watch. Let's knock some of this out here. We've got 12 minutes and we will knock out some of these and see what happens. So AVG, what happened here?

Let's go AVG. Oh yes, Broadcom, my favorite. One of my favorite.

Broadcom had a good week, beats on earnings and guidance as AI revenue doubles. And why did it do what Nvidia couldn't do after earnings? Pretty interesting because I think Nvidia is a great example of sort of priced for perfection. I think the same thing is true of Broadcom, and I would expect a miss here in the near future.

Let's go in and see if we can't get a sense of like where's the miss.

You got $216 million and $255 million in the last couple years of hidden expenses, and then non-operating expenses, and then an operating tax adjustment.

Interesting. Earnings are higher than NOPAT, but the core earnings are worse. Let's see if we did a deeper dive here.

By the way, we're looking at—

this is an institutional membership where you can go in and actually see the adjustments. So here's the $216 million in unusual expenses that get pulled out. So why is core earnings lower? Because this is an expense, and that's interesting. From hidden items, reported items, this should— so should show a bunch of expected return on plan assets, other income. I think that's the big one. So other income for— appears is enough to— other expense, gain on a gain, restructuring charges, restructuring and other charges, net income jumping above core earnings.

I wouldn't expect this performance to last much longer. I'm surprised the stock is up. Good company, bad stock, super expensive. I'd watch out. How about for Costco?

By the way, I'm a huge Costco fan.

Go there almost every weekend. Last week I was there with my youngest son and he made the funniest joke about a final boss at Costco.

It was hilarious.

Apparently people, a lot of people go to Costco and they like hang out and they eat there and stuff. I just go and shop.

I buy the food and I cook it, but I don't eat the food at Costco though. I understand people do.

Earnings beat expectations as membership model shines. The stock is flat this week. Costco's, I think, a great example of good company, bad stock.

Neutral rating.

Love the business, love the product. It's expensive.

I wish, wish we'd bought this back at $200 a share or something back then when it was probably cheap.

But if you wanted to know what it needs to get to to be really cheap again, the way I would look at that is to— I'd scroll down. Past free cash flow, we can see these guys are consistently free cash flow positive. I'd go down to the economic book value and see what the no growth value of the stock is. When it starts getting down into this range, or maybe just one and a half times two fifty, that's where it'd be cheap. So now cheap is what's cheap for me. Does that mean it won't? It's not going to go up until it gets down this low. No, it could still go up and get really expensive. We got a lot of stocks in this market that are. Like nutty expensive. So Costco, good example of a company with good earnings but didn't go up. CrowdStrike, my favorite stock to hate these days. What did it do? Yeah, it's done all right. Now how's it done in the last month and year to date? Okay, down a lot. So it's been crushed here early on. It's a little bit of a bounce-back rally I think we're seeing with technology, and I think technology kind of makes sense to bounce. In sort of volatile market with war-related stuff, because technology is the one thing that's going to keep on trucking. It's maybe some of the, the sort of traditional economy stuff that is going to get interrupted potentially by higher input prices and other supply chain issues related to war. So technology is more of a safe haven in this environment. But goodness gracious, are we seeing things move around back and forth all over the place.

All the time.

So what does it say here? How do they do? Shakes off software concerns as fourth quarter sales rise. Excellent quarter. Everyone liked it, and it had a good week. Good week. Would we recommend it? No. This is bad company, bad stock. We're getting a new 10-K any day now. We did show that a beat was possible. Am I going to do reverse DCF on WD after the merger? Sam, yeah, man, we can do that. We probably— that's a great idea for a Long Ideas Dinner, or maybe we'll do a special on that. Great idea. But if that's something that you'd like in a Long Ideas Dinner, if you're a professional subscriber, great. If you want it otherwise, send it into support. I'm not— because I'm not taking notes and remembering all these suggestions, but it's been a while since I've done some reverse DCF work, and I love it. I miss it. It's super fun. And maybe next week or week after that, we could do some reverse DCF case studies and have a special Webinar on that. That might be fun, like a podcast instead of an earnings watch because I think earnings season is pretty much over here.

We can do an earnings watch or a valuation watch and do reverse DCF.

That would be fun. We do it on a couple companies. All right, Ross Stores. Good company, expensive stock. You look folks, cheap good stocks aren't they're not growing on trees anymore, folks. You got to dig deeper. And speaking of digging deeper, it's time. We're going to do a little pat on the bat. For new constructs here. Ross Stores, great results, had a jump today, not doing so great for the week though, still doing fine. So doing fine. Again, in today's environment, we're just seeing things move all over the place for whatever reason. But look, if you want a port in the storm, I want to give ourselves some credit here because I think last year, in the last year and a half, we've been saying, hey, we think a lot of these AI stocks are expensive. And so we're going to work really hard to find you some good AI stocks. So like when we roll out like ideas about good stocks at New Constructs, like our Super Stock Bundle, or we say, hey, we're going to go find the best AI stocks, I think you should pay attention because you look at Photronics, which was our AI stock pick over the last year or so compared to other AI stocks, Meta crushing it.

And let's see, Meta, Oracle crushing it, MSFT crushing it, AMZN crushing it, right?

All these like big cap, fancy, popular AI stocks. And Nvidia about the same with a whole lot less risk. So that was pretty cool, I think, man.

We—

that was when we went out and said, listen, we think it's really hard to find a good AI stock. We're gonna find one for you. And we did another one too. ARW. I don't think it did quite as well.

Oh, shoot. Lost all my comparisons. Can we just— let me add it here. Sorry about that, folks. Where does Arrow show up? So it's—

yeah, it's right there. Still pretty good. So Arrow and Photronics 67. Oh, it took out Nvidia. But anyway, you get the idea. We did great versus, like, the Mag 5. We did awesome versus the Mag 7, except maybe for Nvidia. Anyway, good stuff by New Constructs. That's 2 stocks that dramatically outperformed the other ones because we went and said we did the diligence. We said these are still 2 good stocks, and by good stock at the time, P Lab and Arrow were very like attractive and very attractive. That's what it takes. And so when we're— when we do that kind of work, you should pay attention. If there's a bundle coming along, super stocks, alpha stocks, AI stocks, Because we're already screening the universe of stocks out there for the very best of the best when we give it a very attractive rating. Because less than 4% of all the stocks we cover, 3,500, get a very attractive rating. So then we screen that down even further to find stocks we like based on a certain theme or etc., or additional criteria. It's time to Pay attention, folks, if I have to say so myself. Back of the truck.

I hate to say that because that's what it's like cheating Wall Street for people used to say that I knew, but you get what I'm saying.

We're doing a lot of diligence, a lot of onion layers being peeled off to find really good stocks when we come out with a bundle. All right, AutoZone. It's one of our favorites for a long time. Focus list. We've had to keep— we keep looking at this. It may be like, oh, we got to take this off the focus list because Keeps getting expensive, keeps doing well. This week not so good. Yeah, takes results out of zone. So yeah, it's probably got really hurt on a lot of this stuff on the bad weather.

So a poor quarter, but still okay for the year. Yeah, this has been one of our favorite stocks for a lot of good reasons.

Great profitability, valuation. Yeah, yeah, we have a conversation about this one fairly often, like AutoZone, it's been a great stock for us. Should we close it? Ah, and long ideas are tough because they say you're gonna get to let your winners run. We certainly didn't do that with Nvidia. We had Nvidia like 25 cents a share split adjusted back in the day, and we probably closed it at $20 a share, and it went on. So every now and then I gotta let my winners run.

Target—

this is one we've not been so right about, and I thought we had a good thesis on this back when we first made it a long idea. I still think our thesis is pretty good. You never know, man. People get— there's some mismanagement that goes along, goes on, and things get off the rails. And that kind of happened with Target. We have to keep watching this one closely.

How'd they do this week? I would imagine retailers in general. Okay, pretty good.

Big changes went back customers. There's some interesting— doing some decent stuff. It's gonna take a while, and that's just the way these things work. But I'm imagining we had a pretty decent quarter here.

And so yeah, Target, middle of the road here.

Neutral rating says it all. Kroger. This has been one we've been highlighting for a while.

And if you're not a New Constructs client, you're getting some great research right now. So just talking about all this.

Good week keeps forecasts soft as new CEO bets on growth by keeping prices down. Yeah, this has been a great performer year to date, and I think this is a great stock. And I think this is, this is one of the things I think in a world where everything's up in the air with technology, what's going to happen, grocery stores aren't going away. Now, unless we see a significant decline in human population, in which case you might want to be bearish on Kroger. All right. EchoStar. Bad company, bad stock. This is the old cable TV, I'm sorry, satellite TV firm.

What's going on with these guys? Why do they even make the list? Who chose this stock? Oh, I did. Huh.

Down. Guess they didn't do so well. Yeah. I wonder how these guys are doing versus YouTube TV, YouTube, and then like the YouTube Fiber.

What's the satellite radio guys?

It was EchoStar and DirecTV.

I wonder how they're doing. I wonder how much Starlink affects them.

Yeah, I don't— I wonder.

I just—

yeah, I haven't heard from EchoStar in a while. They're out of the wireless network business, so they're not going to compete with Starlink. That probably means that they were getting their butts kicked. Yeah, DirecTV and Dish. EchoStar was Dish, I believe. I think the Dish TV owner EchoStar loses 168,000 pay-TV subs in 4th quarter. Not good. So that's why we're seeing the stock down. Yeah, this one may be on the way out, folks. Sometimes these stocks on the way out, when they're like really going out of business, they start selling the balance sheet and things look a little bit better. But yeah, not so good. We just got a new 10-K, probably a lot of restructuring costs in there that got pulled out. MDB, MongoDB. I remember this because I did a big meeting with some— I'll never forget— with a bunch of Motley Fool folks, and they asked me about it, MongoDB, and I said, yeah, it looks expensive, and they wouldn't have it. We did the reverse DCF and it showed like the company had to do 30% compound annual growth in revenue and profits for 20 years, and they're like, yeah, whatever, man. Yeah, you know what you're talking about. Okay, boomer. Anyway, and I wonder how the stock has done.

Let's look at MDB. Let's compare to MDB.

So not so well.

This was years ago. Goodness gracious.

MongoDB has not done well. Yeah.

So whatever those folks were saying, they should have listened to me because it's 5 years, not well. EchoStars crushed it here recently. Was this last year or so? Okay. Wow.

280%.

Interesting. Very interesting.

So MongoDB though, yeah, bad business. Negative earnings, negative economic earnings, negative return on capital, super expensive valuation. Yeah, don't touch it.

Don't play with it.

And Bed Bath and Beyond, a database business, a database.

Like, come on.

Bed Bath and Beyond retail looks pretty good. Attractive rating. Attractive rating.

Let's see. Bed Bath.

BBBY, how'd they do? Down.

Don't even get a headline on these guys.

My guess is they didn't have great earnings. All right, those are all the stocks we have. We're at 11:35. I know I ran over it. I was a little bit late. So let me make up some of that time for you. We had some early requests here for stocks to look at. And so let's put in—

let's go ADBE. For DL. Now, DL, you're a client, right?

So you know the answer. I guess you're going to say, hey, so what do we think about this? Looks attractive. Didn't Michael Burry recently come out and say Adobe needs to buy some company because they got cash flow? I think that's what he's saying. I don't know how strong this business is long term. I know they do the PDF and there's a lot of stuff in PDFs and forms and whatever. But I just don't know how that segment of the— how strong that market of the segment of the market's going to hold up with kind of everything else that's going on.

Let me see here.

Yeah, Ideal, this is— it looks a little bit better. I just don't know about the moat on this business. And I think Michael Burry's kind of is pointing out, look, that he thinks that management with the cash flow it's generating, great return on capital, super profitable, reasonable valuation. They need to potentially do something better with the business to boost growth going forward. I think that's the message.

BBBW, get that. All right, what was our other one?

NEW, NEM, that wasn't a request.

I think it was Eric just saying.

Let's see, Simon, I put in here for CNQ.

What do we got for CNQ? Canadian Natural Resources.

Neutral rating, rich in oil sands and gets oil out of the ground for under $40 a barrel. Great fundamentals as well, fairly valued.

Your thoughts?

Yeah, this looks like one that the market's kind of figured out. We're pretty bullish on energy and have been for a while. We think demand has been understated, and especially for traditional fossil fuels, but we probably should have been in here around $35.

We're at 46.

Let's see, we're not getting another—

we don't have a next. This is 40F and it doesn't show the next expected filing.

Got to figure out what's going on there. Okay, we'll do one more.

Let's see here. Ambev, very attractive.

Is Ambev the new Budweiser? But yeah, looks pretty good. You know, and I guess these guys, I assume they're just gonna buy these new drinks that have things besides alcohol in them, whether it's marijuana, THC, CBD, or psilocybin, I think it is. So yeah, what can you say, man?

This looks good.

It's hard to bet against these guys.

This is a business that's, uh, that's— we're gonna keep partying.

That's one to bet on. So, yeah, Ambev looks pretty good. Okay, folks. I think that's all we got for today. Thanks for being with me again. Looking forward to getting FinSights out there to more of the world. If you're in the Middle Tennessee area, I'm going to be doing a talk on AI for the Financial Planning Association of Middle Tennessee. If you're a certified financial planner, you get a 1-hour credit for attending this talk. So, Come on out and see. We'll talk about AI.

I'll be able to talk about my experience with Google and really how it's going to affect the investing business and how to think about that in the future.

So I think that'll be fun. And otherwise, thanks for the great ideas. Any suggestions you guys had that I didn't get to, send them over to support, and that way the team can keep it on the radar for additional content and subject matter for future calls and podcasts. Thanks and have a great weekend.