Watch Our Earnings Recap on Apple, Amazon, Eli Lilly, Mastercard, Microstrategy, and More

Let's get going. Thanks for being with me today. Let's jump into it. We got a bunch of stocks we're going to be covering today. Lots of big news out last night. It's been a busy, busy earnings season, and we're seeing the markets reverse a trend that looked really bad. Going into the year, and now all of a sudden looks pretty darn good. Looks like markets—I think the Nasdaq has completely recovered since Liberation Day, and after another day like today, we're going to probably be getting pretty close to up for the year. I mean, let's take a look here. Let's look at Apple year to date. Let's compare that to Nasdaq year to date. All right, Nasdaq still down about seven percent, but if it's you know it stays up a good bit today, I mean, we're going to be getting back to break even for the year. Let's see, how's the S&P looking? Yeah, it's only down 3%, 3% year to date, and today it's up another percent. So we're closing the gap. All the hoopla about what was going on with tariffs turns out maybe not that big a deal. Or is it a false rally? My sense is a bit of a false rally. I think liquidity is getting lower, not higher. And this has been mostly a liquidity-based run in the market for at least the last 18 months or even 24 months. And I think that we are seeing valuations stretched in a lot of specific stocks. Doesn't surprise me to see some of these all-time greats, these Mag 7s. They're not all greats, but I would put Apple, Microsoft, Meta in terms of profitability as all-time great companies in the history of the world. Doesn't surprise me to see them do pretty well. Apple, the exception, but Meta and Microsoft, I mean, they are in a sweet spot in terms of the overall economy. And so we saw a really tremendous performance out of them post-earnings and strong guidance, which I think is heartening for everybody. If you've got any questions, please get them into the chat. And with that, I will share my screen and we will get going here. All right, we've got 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 stocks. And if anybody have requests, I will take those as well. But let's start. I talked about Apple a little bit last night, and the news with Apple was that they did well. They saw a lot of advanced sort of demand pulled forward as people wanted to get in and buy their iPhones while they were still cheap. But they are warning about China sales and tariffs in general. And so I think we've seen the stock down a fair amount compared to the market being up. Stock's down a lot. I think the stock market, the S&P is probably up a couple percentage points. Let's see, we'll compare that to the S&P 500. It's up in the last 5 days. Yeah, it's about almost a 5% spread. As Apple being down 5% versus the S&P over the last 5 days. Not a good trend there. What do we think about Apple? Well, if you were with me yesterday, you know that Apple's one of those good company, bad stock. So we see great economics, great high return on capital. This return on capital used to be 3 times, 4 times as high. I mean, it was a 300% return on capital business for a while. Amazing. Not sustainable. But look, the profitability of the business still remains tops in the entire world. That's one of the most profitable companies of all time. But the valuation here is a little bit too expensive. I just wanted to touch on Apple real fast, even though they reported last night. We covered it yesterday. It's one of those businesses and stocks where you got great profitability, but that's not enough. You need to have great future profits. You need to have great guidance in order to keep a stock like Apple moving up. You can't have one without the other. And it's going to be a similar situation with Amazon. What do we got with Amazon here today? Looking at our list, Amazon down a little bit, down half a percent. So it's underperformed the S&P by about 3% here recently. Amazon, a great example, another great company, but expensive stock, even more expensive than Apple. You can see this 4.7 price-to-economic book value. That's a really high number. We did a great study recently on Amazon that I highly recommend for anybody who cares or enjoys reverse DCF models. We go into exactly what's required to justify the price here at Amazon. And I think a big difference between Amazon and Apple is that even though they're both getting best ratings possible here on the quality of earnings, Apple's return on invested capital is way higher. I mean, you got an 81 versus 15. You've got margins way higher. You got a very different service-driven model at Apple with a high-margin product than you do at Amazon. Amazon is in capital-intensive, low-margin businesses with lots of competition. Retail and Amazon Web Services. We saw with Microsoft, their Azure business is competing very well with Amazon. They had huge— they had a huge beat. They're crushing it. You know, and by the way, you know, Microsoft has got its own huge data centers itself. So it's kind of— it has the benefit of eating its own cooking in some ways in that it needs the cutting-edge data center capabilities to service itself. And so that's going to, I think, create best practices and intelligent and experienced. It's going to help them build for their customers even better. So Amazon, good company, expensive stock, super expensive. If you've not seen Mr. Market Thinks Amazon Will Rule the World, I highly recommend you take a look. I'll drop that into the chat. People can take a look at that. Amazon only makes money on AWS, loses money everywhere else. Yeah, I think we've kind of known that for a while. Retail's been a loss leader. Lots of volume, and I think they're happy with that. I think they want to sort of undercharge, and they're practically creating a monopoly. I mean, it's it's it's a hard product not to use. I know we use it a lot in our family. I mean, shoot, I don't have to go to this grocery store except for perishables, and you know Amazon just makes it easy. You know, it's so cheap that you don't even have to think about all your stuff at one time. You only have to have a list. It's like, oh, I need to order this. Ding ding ding! Order one off. So that's pretty amazing. But yeah, I think it's the AWS business, and again, that's a capital-intensive business. Most people don't realize. Free cash flow for Amazon consistently negative. They've got good return on capital, not great. See, '22, that was a tough year. That was a COVID, I think, effect. But, you know, this is nowhere near the 80% return on capital you're seeing for Apple and other tech businesses, other Mag 7 type businesses, even excluding Tesla. But I don't think they're Mag 7. Free cash flow for Amazon. I mean, look at this, $36 billion, negative $36 billion, negative $45 billion, $48 billion, $13 billion, negative $31 billion. I don't think I've seen a positive free cash flow year for Amazon. So that's part of what makes the valuation so expensive because, look, you can have a decent return on capital, but if you're still growing your business at that kind of a rate or you need that much capital to keep it going, you're never going to have a great return on capital. You're never going to have an amazing return on capital. 15% is top quintile. Don't get me wrong, but the valuation is very difficult to justify if you never actually generate any real cash flow to the bottom line. So that's tough. Who are the companies who have the lowest quality earnings, economic versus reported? Well, we could search for that pretty easily with our screeners, and that's a professional service. I think the first thing you'd want to do is look at the very attractive and unattractive, and you'd have— I'd say you want return on invested capital that's like less than zero, and quickly you can filter for that and get a list of companies that have low quality of earnings. If you're an institutional client, you can go in and you can actually Go into operational and you go into ratings, economic versus reported EPS, and you could screen. Let's edit this and say we want everybody that is greater than 3. So that would be unattractive and un— very unattractive. And we could get this for sector. We'll go for, let's go for technology. And so we can get a list of the companies right here. These are all 4s and 5s, low quality of earnings for economic versus reported earnings. You can see that's— this kind of database search is like a very high-end, detailed kind of thing. And, you know, is probably worth— in this search, just to do this right now, I mean, that's probably worth $10 million. That's what it would cost to replicate this analysis. With the quality of data we have, you could do it on Compustat, probably, but like, you don't know the numbers are right. If you don't know the numbers are right, oh yeah, rough cut, you know, I've heard it all. Yeah, you know, oh yeah, your data might be better, but as long as everyone else is using the same bad data, well, I'm okay with bad data. Good luck with that strategy. I don't, I don't think it's a, it's a, it's a long-term plan for success. Okay, let's go for portfolios. Let's get back here. So Apple, Amazon. Let's talk about Eli Lilly. So we were early in Eli Lilly. We were recommending Eli Lilly, I think, in the tens and twenties. So we've been positive on this. But you know what? Good company, bad stock, right? I mean, it's again, you know, all these names that we've loved for a long time have gotten expensive. We've seen a lot of crowded trades. Eli Lilly didn't have a great report here recently because they lost some shelf space. CVS is switching from offering Eli Lilly's weight loss drug to Novo Nordisk's weight loss drug. And so that's, that's a hit on the future. And that's what happens when you've got a stock that's got as much such high expectations baked into it, right? The price implied expectations for Eli Lilly are super high. It's up there 3.9 higher than Apple. It's been a super profitable business. People like it, they crowd in, it gets expensive. Bad news hits, or even slightly not good news hits, the stock's going to get hit hard. In an up market, you know, it's down the last 5 days, it's down 6%. We saw the S&P's up a little over 2%. So that's like 6.7. That's almost 10% difference between the S&P and Eli Lilly. I got a great question here from Olivier about Meta changing their amortization, extending the useful life from 5 years to 5.5. Yeah, that's going to help margins. That is a definitely a non-cash improvement. It will be flushed out in our models, in our free cash flow analysis. So if we were to look up the ticker, why don't we just add Meta to this list since we're asking about it? Really strong, high return on capital, high going up despite quite a lot of spending. We know that the metaverse thing, the good thing about that is like, yeah, it was a mistake, but Zuckerberg. pivoted pretty fast. It's like, it's like yesterday's news. That's impressive. A lot of big firms have a really hard time acknowledging, admitting mistakes. So with Meta, you've got some really pretty strong cash flows here, and the extension of the useful life assumption is going to affect quality of earnings and it's going to affect margins, but it does not affect free cash flow. However you amortize your capital does not affect free cash flow. It doesn't. That's the beauty of the free cash flow number. Now, it's a noisy number because it doesn't have all the smoothing benefits that accounting has. There's some benefits to the matching principle. There really are benefits to the matching principle of accounting that we use in our own models to understand the ongoing recurring profitability of a business. We want to get a sense of that. We don't want to ride the wave of every capital expenditure and trying to understand of like the normalized profitability of a business. That's a big part of what our economic book value is all about. We want to understand the normal ongoing profitability of a business. And Meta's got a pretty strong economic book value for that reason. It's also got strong free cash flow. So I think, Olivier, as much as extending the useful life of the IT equipment, it's a shady way to improve earnings. But when you've got a company that doesn't need to improve their earnings and they're already strong as Meta is and they're making that much cash flow, And we can always check to see whether or not the cash flow is still good. I would say don't sweat it. Quality of earnings at Meta still strong. It's a valuation issue. And look, valuation hasn't mattered that much in recent years. So MasterCard, I talked about Visa yesterday. I think Visa had a pretty decent report. Let's see. What happened with Visa? Both of these stocks look good. Yeah, these are great businesses, right? They don't have to do anything. They just collect the fees for people every time somebody uses their network. They're just collecting the fees. All they got to do is try to get more people to use it by Visa versus a MasterCard. You know, I don't— for me, it's sort of inconsequential what is what. They all, they all seem to work pretty much anywhere. And so yeah, good businesses, great businesses, expensive valuations, right? And what we're about is trying to help people. And yesterday we had a great one. We talked about an awesome, very attractive stock. I put it into the system for our guys to Think about writing up a long piece on it. Just going through the numbers, it was a great business, addictive product, very attractive rating, super high profits, super cheap valuation. That's where we need to go. When I say we want to give you solutions that show you where the puck is moving or how to find the right stocks in this market, what I'm talking about is green all the way across the board, not green here and then red here because everybody knows about it and it is a crowded trade. No, green here and green over here because it's super profitable and the market's giving it no credit for its profits. In this situation, the price implied expectations are too high. The market is giving it too much credit for future profits, or so much credit that you wouldn't be willing to bet on anything better happening than what's already baked in the stock price. Let's talk about Lindt, basic materials company. We got a new queue coming in. You're going to see the suspended rating a lot on the site. If you're a client, we're processing hundreds of new queues daily, thousands of queues, thousands of filings, and hundreds of queues for the companies that we cover. So we're getting new data. So these ratings are going to change some, a lot. I think every earnings season we get about 800 upgrades, probably just as many downgrades, maybe more, depending on what goes on this earnings season. I think it's going to be even more choppy. This is probably one of the most Important earning seasons we're going to have until next earning season when we really see the impact of tariffs. This earning season has been important because we're seeing the impact on guidance. And that's been very telling. Some companies guiding down, some companies pulling guidance altogether, some companies sticking by their guidance. Really speaks to which businesses are going to survive and thrive versus those that are going to take a dive. So, Lindy, decent quality of earnings, expensive valuation, unattractive rating overall. Quality of earnings not enough to offset how expensive the stock is. So I, I'd give this one some space. No reason to jump into something this expensive. Stock's up today, stock's up the last 5 days, year-to-date up 8%. Interesting. Strong margins and dividend growth, largest industrial gas supplier by market share and revenue. So interesting, especially compared to Dow, which I think is a very different business. But industrial gas, you'd think that this stock would be really recession sensitive because industrial gas is a fuel for an industry around the world. With this kind of valuation, I'd be really careful. Watch out what's going on here. I would be taking some gains right here if this were in my portfolio. Stryker, it's one of my favorite stocks. I've been covering it forever. I remember when it was really cheap. Really attractive. I think we wrote about it many, many, many years ago, but it is— I think it was back in 2014. Strike while the iron is hot. I bet this is Sam McBride wrote this one. Maybe I wrote this one back in 2014, 11 years ago. Profits better than you think. Intelligent acquisitions competing against the big companies. Cheap valuation, limited downside. Ignore the price-to-earnings ratio. So yeah, we've liked Stryker for a while. Let's see, let's take a look at how this stock is. Yeah, 2014 turned out to be a pretty good call. It was $80. Now, so what is that, almost, uh, 400-plus percent? But good stocks aren't great forever. It's kind of expensive. It's a crowded trade. You got to go to places where other people aren't looking if you want to make money in this market. Crowded trades aren't going to work anymore, not as we see Liquidity coming out of the market, which we're going to see more of. I think this is largely a sucker's rally. I don't expect the market's going to crash, be down 80%, but I think we're going to continue to grind lower. There's no way to get around that rebalancing global trade, however it happens. It's going to hurt. We're going to have to go through some pain. It's going to take a while. We've gotten addicted to everything being super cheap. It's like we use and abuse. We just buy it and throw it away. I don't need to worry about Then if these pants fit, I just, you know, take them back. Or, you know, I can— they're so cheap, I can buy 5 of them and keep one of them. Sort of use and dispose economy is not healthy for us. We got a trash problem in the United States, right? And China's been happy to take our trash and happy to sell us cheap stuff, as a lot of other places in the world. We need to, certainly for defense reasons, I think it's obvious, but for a lot of reasons, we need to retain some industry. Why let other people in the world employ slaves and force people into horrible working conditions to make stuff for us? When that means putting our own people out of work. I'd rather pay 4 times as much for 1 pair of pants so I don't have to buy 5. Still a good deal for me because I know they're going to last. That's kind of the American way. That's why I think about Levi's and their advertisements, right? This stuff is built to last. That's just a better way to go through life. This sort of consumerism and everything can be thrown away, slash and burn approach, that's just not healthy. It's not good for the world, not good for the ecosystem. It's not very green, right? We need to be conservative with our assets. We need to be good stewards of our assets. The folks at Chick-fil-A, their corporate motto is to be good steward of all their assets. It's part of why they have such a great culture, great business. And by the way, I got to visit there earlier this week, got a tour of the company. Amazing, amazing things that they do there. And I think the sense of stewardship is one that shouldn't be lost on us as a society. And I think we lose it when everything's super cheap and we focus too much on materialism and consumerism. And buying expensive stocks may be something that's fun, looks good on the surface, but it's not being a good steward of your assets. It's not being a good fiduciary because these stocks are going to be falling out of bed. And I think 2025 is going to be a comeuppance for a lot of these super expensive stocks. KKR. This is one of the favorites of my buddy John Rotanti. KKR. Yeah, not looking too good here. I mean, 30.3. I think the stock's already down some. I felt like the market's been a little bit more efficient this year than it was for sure the last couple of years. And this is a stock that had a lot of room to fall. And it hasn't fully recovered because it was super expensive. I mean, and it's still super expensive at 30.3 price-to-economic book value. I've always said, look, more than 100 years is a lot for the market implied growth appreciation period. Again, that's based on consensus numbers and extrapolating those out for as far as we can. But you don't get enough consensus to really capture how far out the market is looking. That's the joke about earnings. Like, oh yeah, let's focus on this quarter. This quarterly number for a firm like KKR is probably about 1/100th or less of the future cash flow the company needs to generate to justify its price. So, it's like we focus so much on these inconsequential numbers. And then if they beat or miss by a penny, You know, we obsess about that or by a nickel when in the big scheme of things it's really utterly inconsequential to the long-term valuation. So is it representative of potentially a trend in the business? Sure. I'm not saying you can't get any information out of quarterly earnings. I'm just saying they're not as important as people think. And that's a big part of why I like to come in here and show you my rating system every time. Here's the big picture. The big picture is this business isn't looking very good. It's got an expensive valuation. What would I need in order to think this was attractive? I need to see a dramatic improvement in the profitability and a dramatic reduction in the valuation. Both of the things got to happen, and one earnings report is not going to be enough. Question about economic book value. If you're on the site, I believe, Olivier, you signed up here recently. Economic book value, just go to the education section of the site, folks. So education, metrics definitions, and you'll see here under metrics, Price to economic book value right here, and it will define it all for you. Here's the formula: price per share over economic book value per share. Here's the economic book value formula, all the adjustments we're making. There you go. But any metric on the site, anywhere you see anything, whether it's economic earnings versus reported earnings, ROIC, free cash flow, as you go into the rating breakdown, professional clients and institutional clients, you'll see there will be a link to everything. The cost of building a model, like the market value of one of these ratings and all the data that goes into it, easily $10,000+. If you take into account the full history that you're getting in one of these and the rating breakdown, I mean, you're talking $20,000, $25,000 because you're talking about at least a couple of weeks of time for a really smart expert to build a model. And that doesn't even count the rating because the rating is a function of how all the other models look. The relative comparison. So that's, that's the power. It's like you got a really great model and you're able to compare the results of a really great model across thousands of companies. Never been done before. Part of why I say the screening tool that we have is the best in the world by far. There's never been a screening tool this good because there's never been analytics done this well on this many companies. And if you're not familiar, it's been proven many times that our data is superior. Most importantly, by the Very Attractive Stocks Fund. This is a live-traded index based on the very attractive stocks. You can see that it is outperformed, outperforming today, outperforming year to date, outperforming over the last year, outperforming 5 years, crushing it. Our picks outperform. Here's the core earnings version of the S&P 500. You know, instead of weighting based on market cap, you weight based on core earnings. Year to date, outperforming. Over the last year, outperforming. 5-year, outperforming. There's alpha in our data, folks. There's alpha in our data. There's alpha in our stock picks. We have the solution to help you find the right stocks in this market. KKR is not one of them. The Southern Company. Utilities business. Utilities are just there. It's a tough business, folks. It's just they're expensive. People have been chasing the dividends. Utilities have not really looked good enough for a while. I think people were early on moving to utilities because energy and AI, it was like the derivative of AI, like to get into energy. And so yeah, those are tough. AI utilities are not looking so good. Let's see, how do they do with their earnings? I'm not so sure about this. First quarter earnings, solid start as revenue jumps. So not a bad report, doing well the last 5 days, about, but not quite up as much as the market. But again, expensive stock, expensive stock. Utilities, you can see the sector, utility sector doesn't look so good either. And this, you know, it's interesting, Southern Company grades almost exactly the same as the rest of the, as the overall sector. Not exactly, but close. Almost the same price to economic book value. It's got the same return on capital. You can see for the S&P 500, you have much better stats. Much better stats. All right. One of my favorite stocks to hate. I got this great article. I talked to Bloomberg yesterday about, I think, 21 Capital, a copycat of MicroStrategy. Yeah. I don't know why you own a company to buy Bitcoin when you can just buy it yourself. I think that introduces all kinds of agency risk that this is completely unnecessary. You want Bitcoin, buy yourself. Because when you've got a company buying Bitcoin, you can, you got to make sure the company doesn't do anything with your money besides Bitcoin, including pay its people. So you're paying people, all the people at MicroStrategy making money, getting a salary. That's part of your money's got to go do that before it can go buy Bitcoin. This is a speculative asset. It's a pure speculative pay. I don't even consider this a real investment. Like, we suspend the rating. A crypto asset-driven valuation, which means this has nothing to do with fundamentals. This is for gamblers, is for speculators. I don't want anything to do with this. I think this is bad for society. I think the fact that he gets away with this is a shame. I think the fact that investors are backing this is a shame. This is speculation. This is not investing. The stock market is about allocating capital to its highest and best use. MicroStrategy is not doing that. People should not allow them to do that. People should not give them capital to allocate to a poor use. Piling more money into Bitcoin is not a good use of capital. Bitcoin is not a productive asset. Put that capital in the hands of operators that go out there and create real value. That's what we should be doing. All right, let's talk about ICE. I love these exchanges. I mean, they're great. I think they were great business models. These guys have done a lot of acquisitions. Again, this could all change. We're getting a new queue. Any day now. Who knows? Maybe it came in last night. Could be churning through it right now. But yeah, this business is not looking so great, and it's got an expensive valuation. Don't want to tell you. I wouldn't mess with it. How did the earnings report go? And we are wrapping up here, folks. So if you've got any suggestions, get them in while you still can. Up good bit today. Oof! Up more than the market. Been a good stock so far this year. I mean, look, everything trading is great. Everything involved in stock markets. You got Robinhood. Robinhood sold to the public, hey, we're going to make money based on you cannibalizing your peers. That's right. So invest in Robinhood because all they're going to— their profits are going to come from basically taking profits or taking money from their customers. It's a cannibalistic model. Robinhood makes money selling your orders off to people who front-run you. That's their business model. Congratulations. Everything that's involved in the capital markets can make money these days, right? Because everybody's so ebullient about the stock market, and looks like Intercontinental Exchange is falling into that category. Again, I think it's overall great business. I think the acquisitions have hurt them over time. I'm guessing free cash flow here. Is going to be pretty negative. Yeah, you see big acquisition there, big acquisition there. Otherwise, it could be a pretty profitable business. Be fun to do a reverse DCF on these guys because if they can turn these profits around, you know, we might see this thing actually look pretty cheap if you were to probably give them some opportunity to see this return on capital go up. Let's see margins kind of been yeah coming down competitive business another thing that like. Robert has got to compete with guys like this. It's going to be, going to be tough. All right. All right. With no requests, thanks for being with me. We will be back to you next week with more earnings watches. Appreciate y'all coming in today and have a great weekend. And I look forward to seeing you next week.