Watch Our Earnings Recap on Alibaba, Cisco Applied Materials, Deere, CoreWeave, Cava, and More

We're going to jump straight in to talk about stocks today. This is our professional membership. Welcome to some of you who have been with us before. I recognize a lot of names and there's a few new names. If you want me to talk about a couple of tickers at the end, get them into the chat now. We will take first come, first serve. Let's talk first about Alibaba and JD.com. I want to talk about those at the same time because I think they're somewhat similar, at least in that I believe both of these companies are in the business of online sales. You could see the last 5 days, very similar performance. A year to date, I guess you got Alibaba is up a lot. JD.com is down. A fair amount, especially compared to the S&P 500, right in there between. So what do we think about these stocks? I believe Alibaba did pretty well on earnings. JD, an earnings beat, but it still fell. But both these companies, yeah, similar business models, both in China, both attractive rated. So what do we like about Alibaba and why do we like it? Let's see here. We'll get into the details. So Alibaba, I think I would call this a cheap stock for a reason. So very attractive rated. Those of you who know us well probably know that our, our very attractive rated stocks do extremely well in a portfolio. BNCVA1T, this is an index that tracks the very attractive stocks Only, and if we compare this to the S&P 500, it's always good to have benchmarks in there. And we look year to date, we can see that the you know our core earnings lead core earnings leaders index does very well. The attractive stocks do very well. That's year to date. We go five years. See they both do really really well. So ratings matter. But but this guy, you know, I don't know. I just I just think the you know after after seeing what's happened with some of these Chinese companies. How the CEOs can maybe just disappear. You know, I think I'd just be careful. But otherwise, look, I mean, it's a lot to like here. A lot of green. Green is good. Red is bad. Seeing a lot of green here. JD.com, similar. A lot of green. Very attractive. Even cheaper. We're about to get a new filing. So this could change with a new filing, especially with a 6-K. I think we only get those every 6 months as opposed to every quarter. So you don't get as much information as often. And it's pending. So I think it's that. That means it's either already out and we're processing it today or it's about to come out. But yeah, these, you know, looks good. High return on capital. You know, this number makes me feel a little better. 0.6, a 0.6 price to economic book value implies the market believes the company's profits will decline by 40%. That's cheap. That's safe. If we go to the credit rating, you see like really strong, you know, there's, you know, nobody's going to say anything bad about the, the, the Profitability of these businesses. I mean, they are, for all intents and purposes, probably got monopolistic type power and protections as they compete on a global scale. So that's not an issue. Valuation looks very cheap. I think it's because investors are wary. Alibaba, not quite as cheap, right? Its stock price implies zero growth in the future. A no growth value is equal to the market price. That's what 1.0 here means. So you're looking at a situation where Again, it's cheap, not as cheap as Baba, but, you know, profitable businesses, man. You know, it's economic earnings looking up, number of shares going down. Every— you know, what's not to like here? Well, the fact that it could be taken over and privatized or something tomorrow, and who knows. Got to be careful. I think everyone probably remembers getting burned by some of these businesses in the past, and so it's going to be tough. You can see at one point in time it traded at a real premium to its economic book value, and that, that really has changed and kind of always been that way for a while. So economic book value kind of leveling out. Interesting situation, these 2 companies. You know, it looks like tremendous businesses, potentially tremendous stocks, but I think they carry a lot of existential risk, sovereign risk, however you want to call it. All right, let's take a look at EAT. I wanted to, I wanted to look at EAT because we talked about some restaurant stocks last week. And they all had pretty, I think, pretty decent earnings but poor outlooks. And, and so I figured we'd take a look at Brinker, which is Chili's, Maggiano's. Who doesn't love Chili's? Everybody loves Chili's. I got my youngest brother, man, he like, until he was like, I think he ate at Chili's every day until he was 30. I'm joking, but he loved it. And anyway, good business. They do a pretty good job over there. There's one not too far from us. So they've got the, like, the electric ordering thing from this, from the table and all that. Anyway, pretty good here. I think Chili's parent slashes gains while Cava crashes. So I think that the, you know, the last 5 days done pretty well. I'm guessing the earnings report went well. That's, I think, zigging while some of the rest of the market is zagging. I would say Cava and Sweetgreen, I think those are either— I know those are both danger zone stocks, and I think they have both been zombie stocks. So Brinker is a better business. Brinker's a better business. Look at this. Good company, bad stock, expensive. So, you know, this is, this is if I'm like an employee of Brinker and I've been getting stock, I'm like, you know, this is where it ought to be. We're running the business really well. We've got a high return on capital, strong economic earnings, and the market is valuing us, valuing us for a strong business. If I'm an employee and somebody's giving me stock and it's languishing as cheap, for a long time, I might not like that because I'm worried that the market's not going to value me appropriately. So, you know, it's a sort of, I think, a different perspective for insider versus outsider that we're dealing with here. You know, as an insider, I want my stock to be expensive. As an investor, I want it to be cheap before it gets expensive so I can buy it when it's still cheap. And this is what I'd say is getting away from us a little bit here. Let's take a look at the credit rating. Credit rating, cash to debt, not so great. I mean, these are These are typically pretty highly leveraged businesses. Debt to total capital ratio, it's it's not too bad. Point two four. It's gotten a lot better. The debt has come down a fair amount. That's good. That's great in this business. EBITDA to debt headed up. Free cash flow to debt headed up a little bit as well. We're not seeing big disconnects between traditional and adjusted values. Cash to debt came down some. Interest coverage doing better too. Yeah, I mean, this is, this is a good-looking business. It's a good-looking business. I'd love to— I'd be interested actually to be— to run a model in this business. Maybe we'll open this up and take a look at it later. But yeah, good company, expensive stock. And, you know, I'd say very, very different things about both Cava and Sweetgreen. We think those are dramatically overvalued, poor businesses, especially Sweetgreen. I think I saw an article the other day, people getting tired of the $17 salad. You know, I just— I— anyway, we, we wrote about both of those stocks before the IPO. We've been right, uh, and I think we're still going to be right about those. And I think Sweetgreen's probably going to bite the dust first. Lettuce is a tough business to build a business around. I'm sorry, lettuce is a tough product to build a business around, right? I'm selling lettuce at a premium, make a really good salad. Yeah, not a great business model. All right, let's talk about Applied Materials. We're seeing this a lot in the tech sector. You know, it's, it's super profitable business. I mean, if you look at our core earnings leaders and you look at the holdings in this core earnings leaders fund, which is— I'm sorry, ETF— which is outperforming significantly, guys, right? Like 132% versus the S&P at 90% year to date, 15%, 16% versus the S&P at 10%. That's impressive. That's impressive. And you look at the holdings, you're going to see a lot of tech stocks in there. Why? Because, you know, I just had a meeting today with a person who's like, yeah, you know, your PE is a little high. And I'm like, well, because for these stocks, the E is wrong. The E is much higher than people think. So the PE is not as high. And that's an advantage. That's an advantage. I got a great comment about on Sweetgreen. What about the tomatoes? Yeah, exactly. I think the tomatoes is where the E. coli is usually, right? So yeah, not a good deal. All right, let's take a look real fast here at Brinker and see, you know, what kind of expectations are baked into the stock price. So we've got a margin coming back down to normal. Let's say margins pop to 8, which is unlikely. And let's just see what that does. We'll let that run. In the meantime, we'll go talk about another stock. So Applied Materials, how did it do in its Earnings report. What? Not so good. Not so good. We had a miss here. So I guess we were predicting that. That miss is going to be based on the fact that the accounting earnings are too far above economic earnings. And so 0.55% of total assets, that's a big number that gets a miss. So we, I guess we called that. And it's a miss either if it's a miss in the actual numbers Or weak guidance, it's the same thing. Guidance— weak guidance is basically saying we're going to miss next quarter, so you don't actually have a miss. Same idea. All right, let's check out Brinker here. If we put in a higher margin, how much of a difference does it make? Okay, so the stock's at $158. We're getting implied values of around $50 a share, even with that higher margin. So let's go in here. This is where the product is so powerful. So if I want to be bullish on Brinker, I got to, I got to put some numbers in here. They're going to get implied values that are much higher. So I'm going to— let's just keep consensus about where it is. Let's give them 5% growth. Actually, I've used the tool enough times. I know we're going to have to jack it up more than that. We're going to go 10%, 10%, 10%, and then 5% and 5%, which are big numbers for this kind of business. And then on the optimistic, let's go. 8, 9, 10. That would be— all right, we're going to go best margins of all time going back all the way to 1998. Looks like '11 is the best margin of all time. So let's, let's go with '11. We'll save this off. And this is just a great way for anybody who's bullish on a stock. I don't care if you're an advisor, you're an individual, you know, if you're working at a hedge fund and you're a senior guy, I would want to make sure all my junior people are doing this. Or when they come in and pitch me a stock, I'm doing this in the background to see whether or not they've done their diligence, to get a sense of, okay, you're bullish on this stock. Here's what they got to do to justify the stock price. And it is really— it's even more fun when you do it for stocks like Cava and Sweetgreen, when they've got to grow at like 30% compounded annually while doubling their margins for 30 years. It's like, okay, yeah, never in the history of the world of any company, much less a restaurant. So Applied Materials, they had a miss, stock got crushed. Why? Well, because when you're expensive, you're at risk of getting crushed. And I think we're seeing the market on the margin get a little more discerning, right? The meme stock crazes aren't as wild. We're seeing companies get hit pretty hard when they miss. So it's a different world. It's not quite as maybe as easy as it was for a while. Deere, good company, bad stock. I think this has kind of become a crowded trade. Poor disclosure, red flag, because they used to break out the financial division from the industrial division. They don't anymore. And that just kind of makes it harder for us to really understand the business because the accounting in the businesses is so different. And we need to distinguish between interest related to the financial business and interest related to the industrial business. And if you can't do that, You're kind of, you know, you lose visibility that I think is healthy. All right, let's take a look at optimistic. How does optimistic do? So even with— excuse me— even with those super optimistic numbers in the forecast, my friends, we cannot get to the current stock price within 100 years. Right? So, and let's take a look at what we're talking about in terms of implied Revenue and profits. Let's try just let's go no pad. Just looking at the you know fifty years. Golly, I want to see the historical. There we go. So that's historical profit, and we got a lower margin. We pop the margin back up, but you can see we go historical when we go out ten years, twenty-five years. I mean, it's rocket ship stuff. This is really cool. I mean, when we just look at historical, it looks like wow they've done a lot better, and they have. And they have. But the market is saying, oh, it's going to get a whole lot better. And this is, to me, this is just like quintessential the kind of market we're in. We've just got so much money chasing so few opportunities that valuations are like, oh, this has been a good business. I'm going to pile into that. So, like the meme stock guys got smarter. It's like, you know what? I don't have to pile into companies about to go bankrupt. I can pile into a profitable business. That's smarter. than piling into a business about to go bankrupt for sure. So very interesting. And Deere, Deere, coming back to Deere, how'd they do? Yeah, I think they had a rough report too. Not so good. Cuts outlook as 3Q profit and revenue fall. Shares drop as net income falls, guidance narrows. Yeah, not a good, not a good report for them. We had them as in line, but you can see they're both headed down. So maybe just went down a little bit faster than expected, but we weren't expecting a big miss here. And, you know, this is, you know, it's kind of not a big surprise. I mean, if any business is going to be hurt by tariffs, this would be one to be hurt by tariffs in a big way. So, but still expensive, folks, still expensive. Cisco. Ah, this was one of our favorite stocks for a long time. We love this business. Focus List stock. I think it's done very well for us. But it has gotten expensive and we've looked at closing this position a few times. Still up for the year. Maybe we're about a month late because the business is a little more challenged here recently. Really strong business, suspended rating, large acquisition, but still looking pretty expensive. So, I mean, we sort of see this guy, at least this firm, we like this firm because it's sort of like plumbing for the internet. So we kind of feel like, you know, this is an overlooked value, not as sexy. But, you know, you got to have all this kind of stuff, more and more of it. It's the pipes. Even if we've got fancier, better water coming through, the more— the fancier, the better it is, the more we want of it, really. So, but yeah, I have to admit, this is maybe worth a look in terms of whether or not this deserves to be on the focus list. Because this is, you know, it's going to be expensive. I showed you guys what, you know, what we had to do with Brinker here in terms of, you know, remember the forecast, right? Like we're talking. Huge margins and way better growth. Like, you know, the interesting thing is going to be like, how high does it have to be? We're talking 15%. Put another 15% in here. We'll save this off. And the, you know, the cool thing is, is, is this just playing this game? Like, how high do the forecasts have to be to justify the price? And it's, it's astonishing sometimes. It's absolutely astonishing. You can see why Wall Street doesn't want you to have something like this, because it'd be really hard to get anybody to make a straight-faced argument for buying Figma or Circle or some of these other, you know, CoreWeave, etc. Eventually these things come back to earth. Remember Beyond Meat? Who remembers Beyond Meat? One of the original zombie stocks. BYND. We told people this is a bad business model. It was. And look, it was in the, you know, got up to $250 post-IPO. Pre-IPO we said it was bad business model. And I think that they are, yeah, I think they're going to go bankrupt. They've not filed for bankruptcy, but, you know, I don't know. Probably zombie stock. Zombie stock, look out. So Birkenstock, I think this was also one of those companies. Yeah, we did a pre-IPO report and we liked the business. Okay. But the valuation was just too high. So what's going on here? Birk. Not bad. Not bad. Wholesale business is booming. One day ago, shares fall on bad guidance. So it's kind of weird. They had a run-up and a run-down. Run-up, run-down. Noise, folks. Noise. And I would tell you, this is not a great business. Negative economic earnings versus positive accounting earnings. Return on capital, okay. Valuation, pretty rich. For shoe business, and we just did a big report on another shoe business that we do like smaller, growing, cheaper. I'm not saying all shoe businesses are bad, but this one, you know, I don't see a lot of upside left in this, right? Don't mess with it. Palo Alto Networks, another great business, expensive valuation. Great business, great spot, cybersecurity. We use it. Very expensive. How's it done over time? I think the stock has done really well. We've— we have, yeah, done extremely well. Yeah, we've always thought it was a little bit expensive. You know, we're wrong sometimes for sure. And because this thing has just continued to do well and probably stayed expensive, really, you know, good profits. Can't complain about that. Free cash flow, not much there. Let's see what free cash flow looks like. Look, economic earnings. Like interesting here, right? Accounting earnings coming back to earth. What do you got to miss here? How do they do in earnings? Hold the phone, stop. Earnings preview. They're imminent. I guess the earnings have not come out. Interesting. So we're early on that one. We think there could be a miss. Earnings distortion. That's already come back a lot, but still pretty high. But you can see we nailed that one. Interesting to see, right? There's kind of tends to be A normalization return to the mean. Growing shares outstanding, not great. Return on invested capital, super negative. So it messes up the, the, the legend here or the scale. So we don't get to see a lot there. That's interesting. You can see it here. Oh, ROTIC, negative, super negative. But you can see major, major improvement in general. Margins good, capital returns good. Free cash flow. They're really making any money. Just recently got positive. So not bad. Not bad. Kava. Okay. Yeah, we was talking about Kava. What's up in this model? Strong miss. Well, we know we nailed that. Not a great business. Really expensive valuation. This 26.5. Look at all these other stocks. I said some of these guys are expensive. 26.5. That's nuts expensive. Nuts expensive. We're going to have some fun with this. Let's go open this model. I've already got a neutral. I have an optimistic in here. I bet I do. Okay. Optimistic. What is that optimistic number? What is optimistic? That's 30% for like 15 years. So, and then the margins go up, stay at the state, go up double. So when we look at optimistic, it's a 30% growth in revenues compounded annually for over a decade. 11 years, while it's a huge improvement in return on capital versus cost of capital. Let's come down here and see what it means for profits. So we'll come back here and we'll look at profits historically, really low. And then we go out 5 years. Blue line is the optimistic line. So we're seeing a pretty— and we go out 10 years. And you're seeing just literally like, it doesn't even— like the improvement in profits for this business don't even show up, really. You can't even tell the scale when you look at what's implied by the optimistic scenario. So, if we, if we put both of these on optimistic, we only got one line to keep it simpler. And we go back here, historical, right? And we got 5 years, 10 years, 25 years, right? And this is where the stock price is because we've got that growth going out. It goes really crazy, but 10 years, you're still Or 11 years, right? It's even past that. So enormous improvement in profitability. And, and probably puts it, you know, it'd be— this would be bigger than the profits we saw, I believe, in EAT, right? So this is $2 billion in 11 years. And we go over here and look at EAT and decision can go optimistic for EAT even. And if we go 10 years out, Yeah, I mean, even bigger than EAT, right? 10 years out at EAT, you're looking at $1,200 or $1.2 billion in profits. So that's a really, really, really positive scenario for Kava. And just like to see margins double. And we could, you know, if we did this a different way and we said, you know what, margins of 15%, that's crazy. Let's just keep it at 12%. Save that off. Okay. I think you're going to see, like, just like it's going to take even long, like way longer than 11 years. Now, now you need at a lower margin, you're gonna have to grow at 30% compounded annually for 13 years. Not that much difference. You get the idea. Super expensive. All right. CoreWeave, another really expensive stock and poor profits. So weak internal controls. Yeah, you know, that's a big red flag, folks. Big red flag. And by the way, you can screen in our system for weak internal controls, right? So I'm going to put this on dangerous, but you can come in here and you can screen on our analyst notes, right? So you can say, I want all the stocks with weak internal controls and a very unattractive or unattractive rating. This is, this is where you make sure you don't own any of these stocks. This is like, so help me God, I don't own any of these stocks. There's a lot of them. A lot of, a lot of stocks with weak internal controls. Okay, I'm gonna— I got time for one request. Who's got one? We are done covering all the stocks on our earnings watch, and I will take requests. Okay, thank you folks for putting that in here. All right, I'm gonna add one, one more. I guess you guys weren't on the call last week. Apple's always so popular. Apple. What do we write about Apple here recently? Featured stock from the Bloomberg New Constructs 500 Total Return Index. Oh, so this is one of the more heavily weighted stocks in our enhanced New Constructs 500 Return Index. The New Constructs 500, B500NCT. This is a stock that is just like the S&P 500, except it weights stocks based on core earnings as opposed to market cap. So you can see it's beating the S&P 500 year to date, beats the S&P 500 5 years by even more. So it's, you know, it does really well too. Look, core earnings matter. Core earnings matter. Apple's one of the bigger holdings in that because it's super profitable and more profitable than what the market thinks. And that's what this, this paper is about right here. Okay, that's all we have time for today. Thanks so much for being with me. Please leave me some feedback on the survey when we're done, and I look forward to seeing you guys soon. We are going to be doing a big special training next week. Look out for emails on that. We're going to do a big special training about our professional membership. So all these bells and whistles I showed you today, we're going to show you how to get access to that. So be on the lookout. Thank you.