Watch Our Earnings Recap on IBM, Google, AT&T, PepsiCo, Intel Southwest, and More

Hello everybody, welcome to our Friday, April 25th earnings watch. We are going to be talking about a lot of stocks today, a lot of earnings reports. We're excited to be with you. Let's get going. These are the tickers we're covering and Disclosures and disclaimers as usual. We are not investment advisors. We are researchers. We are providing information to help inform potential investment decisions, but we are not making any recommendations for those. So let's just talk about some of the big headlines. IBM, it looks like it's one of the first sort of well-known casualties of Doge as they reported losing a lot of government contracts. Intel misses and cuts guidance. So more bad news there. Google, on the other hand, had a nice beat, raises their dividend and share buybacks, which is not a surprise because if you look at our models for Google, I mean, this company generates enormous amounts of cash flow, enormous amounts of cash flow. Pepsi lowers the guidance because of tariffs. Philip Morris, the nice earnings beat. People still love their addictive products. You know, I love to say addictive products are always more profitable than non-addictive products. It's one of my favorite sayings. I even say that to my kids. I explain that to them like, this is why They make the Doritos addictive and the Sour Patch Kids and all that stuff. It's on purpose because it's more profitable to them. So what does that mean? They'll put whatever they need to put in it to make you just want to eat more of it. Not out there to make you healthy. They're out there to make themselves a profit. Procter Gamble, on the other hand, cuts outlook about having to— and says in telegraphs they're going to have to raise prices. And both American Airlines and Southwest Airlines, they beat. Surprising. In the last quarter, which speaks to how we've not necessarily seen as much maybe as we might expect an impact from all the craziness in the last few weeks. But on balance, I think we're seeing way more bad news than good news for a typical earnings report. The smart money out there, and I'm talking not even like the behind-the-scenes smart money, like every newsletter that even pretends to get in front of professional investors is is cautioning significantly because there's no way that the S&P can maintain anywhere close to current levels if they don't see— if we don't see the kind of earnings growth that was baked into the S&P 500 companies coming at the beginning of the year. And we've already seen a bunch of misses and cuts. So, those earnings estimates are coming way down, which means the PE is stretched. So, even for the most fundamental, the most simplistic, least sophisticated investors looking at PEs, you're seeing a major compression expected in value, even if the PE stays the same, because the E's coming down so much. That's a big deal. I'd say that the big new tech companies continue to look strong. The difference between Google and IBM, one's new, one's old tech. Consumer government services products are in trouble. If you're just out there for the consumer, you're selling to the government, Those those segments are cutting back, and here's my pro you know my my theme on addictive products remaining undefeated in the history of business. And the airlines, despite their beats, they cut capacity and pulled guidance. So things not looking so good on those fronts, to say the least. All right, so the stocks we're going to cover, we're going to take some requests. I got three in here so far, and then we're going to cover. These eleven stocks. So we got a lot to cover today. What is going to happen in the market? How about that for the question, right? Everyone's asking. And I went over a couple weeks ago. I went through the game plan for 2025, and I was really clear that look, we're going to continue to see a lot of volatility. We're going to see challenges. This volatility we've seen so far—it's not over. Maybe not. We this wasn't just a quick head fake. There is, I think, a lot of work to be done in terms of rebalancing the global economic landscape so that the United States does not. Effectively run out of money because the debt issue is significant and we can't hide from that. So, what does that mean at the end of the day? What's going to happen to the market? It's going to continue to be volatile. Old strategies aren't going to work anymore. You can't just MOMO, FOMO. You can't just guess. You can't just try to listen to Roaring Kitty. Profitability matters. And we've seen that manifest big time. in a lot of the performance of stocks. We, in the last week or so, yes, the junk stocks have been on a run, but for the quarter and for the year, fundamentals have mattered. Some of the key drivers I think we need to keep in mind here is that there's no doubt that there's a significant amount of economic uncertainty. I mean, these airline companies are flat. They're cutting back on capacity right now. Pepsi is saying we're not going to sell as much. We're cutting our guidance. So, this is happening. It's already happened. The amount of uncertainty around what's going on is creating inertia, inertia for businesses to make decisions about hiring, about investing, about building plants. It's all on hold. And that's going to have a big impact. And you're dealing with an aircraft carrier when you're dealing with the US economy. It's a big deal. It's not going to just turn on a dime. It doesn't happen overnight, but it's going to happen. It's going to affect things. So, that's why we're seeing consumers and businesses slowing down. Uncertainty creates inertia. A lot of earnings misses despite lowered estimates. And keep in mind here, like, you know, I like to always point out, people don't realize. You ever notice like that after that rah-rah quarter for Tesla, those earnings estimates are really high? And then what happens in the shadows between the end of one quarter and the beginning of another is that those earnings estimates get lowered, lowered, lowered, lowered quietly so that guess what? It's easier for the company to beat. And then we can go back to saying it's a great company. But what's happening when you're not looking is that those estimates are getting lowered dramatically from one point to the next. It's, it's fake enthusiasm, fake Profitability. Dressing up is the way I put it. And I think, yes, we're moving towards where the market is going to be more of a weighing machine than a voting machine. They're going to— it's going to care about profits. So real fast, why is our research different? Because we have the truth. We have a— we have really a monopoly almost on the truth when it comes to fundamentals. No one does fundamental research better than us. And like anybody, if you want to put into the chat, Another research firm that has as many accolades as New Constructs. I'll give you a free copy of our Most Attractive Stocks report, our latest one. And I'm going to go into some detail about some of our accolades. So wait a second before you start guessing. But the bottom line is we do it the right way. We've done the work. We've analyzed thousands of SEC filings. We've been vetted by prestigious institutions. They've written papers. They've published papers proving the superiority of our data. Name another firm that has one paper published on their research. We've got 3, but I'll give you credit if you just find one that's published that proves their research is superior. And it's at every level, the data, the modeling, and the ratings. If you really want to see how good it is, just look at our stock picking, right? So, I've been ranked number 1 on SumZero every month for 46 straight months in multiple categories. And this is versus buy-side professionals. Not, you know, a bunch of retail folks like hoping to get lucky on a small-cap stock, right? No, this is versus professionals, real investors. And then there's the indexes that are based on our data. It's hard to do better than that, right? Like in the first quarter, our Very Attractive Stocks Index— this is an index that just holds the very attractive stocks— it outperformed the S&P by over 9%. It was up 4.5% while the S&P was down 4.5%. That's a pretty good trade, right? And that's a pretty good endorsement of the value of our very attractive stocks and our overall rating system. Wall Street ratings work the opposite. You want to do well, you got to pick the stocks, the few stocks they have a sell rating on, right? So you're getting misinformation all the time. We've got some raw, real alpha. And then there's the Core Earnings Leaders Index. This is an index just based on holding the companies that have the strongest core earnings in the market. It was up while the market was down in the first quarter. Super. So, you know, again, great alpha. And then let's go even simpler. Let's just say, hey, instead of holding the regular S&P 500, let's hold— let's reweight the S&P 500 holdings. We'll take all the same stocks, reweight them based on core earnings as opposed to market cap. Guess what? outperforming there as well. I don't know what to say. You don't think there's alpha in our data? You're not looking. So, I think the kind of the takeaway here is that we are here to provide you something you can trust. And that if you haven't realized it yet, trusting Wall Street is like trusting the tobacco companies when they were still saying that cigarettes weren't harmful or addictive. It's just silly. The data doesn't support it anywhere you look. And if you know anybody on Wall Street, they'll tell you the same thing. And then we've got tremendous data backing up what it is we do now. At the end of the, at the end of the program, I will share with you some of our, our, our top picks right now for this market, how you can continue to make money based on tariff-proof stocks. I'll share more details on that at the end. So let's get into it. Let's talk about the biggest stocks in the market. Well, let's start with Google. Nice, a nice, a nice beat this, this, this week. I think everybody was a little bit surprised by that. You know, Google is one of those stocks, you know, that, yeah, you know, it's, it's just, it's in, it's in a tough position. It's a great business, super profitable, but it's expensive. So it's a neutral rating. I can't get behind this too much. I think it was on our focus list for a while and it went up a bunch and we said, you know, we're going to take some profits. We think AI, is going to cause them to have to spend more. We also think that there's legal issues. That's never any good. So it just wasn't, it wasn't as attractive as it once was. But don't get me wrong. I mean, this baby is generating huge amounts of earnings, core earnings. It's just that the valuation reflects all that because it's part of the Mag 7, right? It got to be a crowded trade. Let's talk about how much cash flow Google generated. Look at this. This is like, these numbers are always just freaking huge. $32 billion, $49 billion, $27 billion, $54 billion, and $48 billion free cash flow every year. What is that? That's like 5 years averaging maybe around $40, $45 billion. I'm not that great at math. That's $200 billion in free cash flow. Yeah, $200 billion in free cash flow in the last 5 years. That's bigger than a lot of companies' market cap. Market cap, overstated market or inflated market cap. So Yeah, super profitable business. Good news on these guys. Nice beat. And they're going to spend a lot of money and give it back to investors. I think that makes a lot of sense. And, you know, they did a small acquisition for $32 billion. That's 1 year of free cash flow, right? That's part— I mean, and they'll probably turn that into a value-creative acquisition, acquisition, as they have with most up into this point. All right, Procter Gamble. What do we got here? I think earnings were good, but they're going to have to raise prices and they cut their outlook. So inflation, this is where, this is where really the issue hits the, hits the, hits the road or, or, or, or is unavoidable. And I think this is kind of part of the grand plan, to be, to be candid, in terms of the White House. And that is that, look, we can't avoid the fact that Companies are going to see rising costs. They're going to have to pass that on to customers. So you got inflation. And then you've also got a slowing economy. So the Fed's going to be stuck here. It can't bail us out. There is no Fed put this time because we didn't really raise rates enough last time. And we've already flooded the economy with too much liquidity. We can't do that or we're going to have runaway inflation. So the Fed can't do much this time around. So we're going to have to make difference on the fiscal side. Right? That's the cutting and spending. We can't do enough there either to fix our problem. We have to shift the global economic landscape so that we are not out there taking bad deals and subsidizing so many other countries. We just can't do it anymore. And it's in their best interest to stand on their own. Same reason that Europe is building their own defense investments, right? They've got to be able to stand on their own. We as the United States, we can't do it all for everybody anymore. We could for a while. We were that awesome. Right after World War II, we could kick everybody's butt in the world, and we did. We can't do that anymore. We need our allies to be actual allies, not dependents. It's time for the children to grow up. And it's not really a nice way to have that conversation. They've been having it nice ways, I think, for a long, long time, and it's not worked. So that's my take on this. And I think that's part of why fundamentals are going to matter so much. If you don't understand fundamentals, this technical FOMO stuff, it's going to crush you. It's going to crush you. Procter Gamble, neutral rating. Yeah, you know, we're getting a new Q here any day, so that'll get updated and this rating might change then. But you've got great profitability here. The problem is this is not going to stick. And you've already got the red flag here on the valuation, the market implied growth appreciation period, which is based on our Best-in-class reverse DCF model, and probably of the five rating elements, the most impactful, most important. It's flashing a red sign, and and that's not that's not good. That's not good. Alrighty, let's move on here. Philip Morse. Yeah, neutral rating. Good company, not such a good stock. Right? What happened with these guys? I think they had a nice beat. People still like their nicotine, my friends. And you know what? I don't know that they're gonna, they're gonna stop. You know, the Zen stuff is crushing it. I mean, I don't know if any of you guys got kids, but like we have a, you know, issue with kids in our, in our school, in our, in our town. Like these kids are all over the Zen stuff. It's pretty terrible. I did have a friend of mine my age. It's like, oh, this stuff is great. You get all the nicotine without the tobacco. None of the, one of the, uh, none of the toxins. So, you know, I don't know. It's doing well. Addictive products are great products, my friends. Addictive products are more profitable. They're stickier. They work for a reason. That's why there's a lot of competition. Philip Morris has been a great stock over the years. And let's see, what's it done year to date? Oh my gosh. Year to date, up 42%. Yeah, it's recession-proof. It's tariff-proof. People are going to take their addictive products. But the problem is it's already gotten expensive enough. So we probably had a— if we go back and look at our rating history, Yeah, it's been attractive for a long time until recently when it started getting expensive. You can see even here we're like, yeah, still attractive, but the run, it's made it expensive, so not as attractive anymore. So this was a good one for a while, not anymore. IBM, neutral. So mediocre business, still pretty expensive stock. I think you guys have all seen this, the, the headlines on this one I mentioned in the beginning. Was a pretty significant, pretty significant, pretty good outperformance so far this year. That's impressive. But it's come down a lot here in the last few days, uh, because yeah, government contracts canceled by Doge. They had a beat, they maintained their guidance. I don't know if people believe it though. I don't know if people believe it. We did predict the beat, but it's again neutral rated. Nothing, nothing, not a lot to like there. Let's talk about Merck. Very attractive stock. So great economics, cheap valuation. This is where, this is where you want to be, folks. This is the kind of stuff, this kind of, kind of stock that makes sense in a world where you care about cash flow and valuation. This is it. And one of the other things we like about Merck is that, look, they're not in the biotech business. They're in the distribution side of the business. Ever heard the phrase, if you're, you know, if you're a tree falling in the woods and nobody hears it, do you even exist? Or if your drug made in the wilderness and no one ever knows about it, it doesn't matter. So, Merck doesn't necessarily have to create new drugs. They can buy them. Kind of like Budweiser buying a craft brew, right? It's a hugely synergistic opportunity. So, they can buy successful drugs and sell the heck out of them through their distribution platform. It's a good model. It's a good model. You know, we were really early on Eli Lilly back in the day, and that was a tremendous stock pick for us. Y'all, a lot of y'all probably know it's done really well, and you know, Merck could be something similar to that as well. So great return on capital, steady free cash flow, pretty good here as well. 2021, bad year. That was— we don't know what happened there, but you know, you've got $20 billion, $1 billion, $18.5 billion. You know, this is, this good business. And then you've got the economic book value, we're Took a dip. It's back up above the stock price. I think this is a great opportunity. This is a place. And the other key thing to keep in mind is that it's less risky because of its cheap valuation. And I think that's what you want. AT&T, pretty good earnings report. I think they took some market share. But I think when it comes to these wireless firms, they're like taking market share back and forth. One runs a promo here and there. There's just so much turnover. I don't know what to say. I talked about AT&T on Schwab. You know, we like Verizon better. Again, you know, neutral rating, not great economics, not super expensive. But what people love here is the yield. They love the yield. And if you want yield and you want a better stock, take a look at Verizon. We think that one's better. So that's our thoughts on AT&T. Pepsi. Yeah, you know, we love this stock for a long time too. It was a focus list stock, did really well. And we end up having to close it because it got expensive. But it's getting back. We're getting a new queue here. But you got attractive rating. The problem is that cutting that outlook, having to raise prices, a tough one. So we would be much more interested in tariff-proof stocks that also are very attractive rated. That's the way to go. That's what we think is a smart way to go. And even if it's not very attractive rated, we've got some focus list stocks that don't have a very attractive rating, that are tariff-proof that we love. And I'll share a way to get some of our top tariff-proof ideas here at the end. Boston Scientific, I don't really— happened with the earnings. Not good business, expensive valuation. This is one you need to turn and run from, folks. There's going to be a lot of potential downside in Boston Scientific as this market continues to get more rational. Pretty good year so far. Yeah, I think all the good news is priced in. And we would say this is one you would want to avoid. Unattractive rating. Intel, similar situation. A lot of the turnaround is priced in, my friends. That's the takeaway. If you were to run through our reverse DCF on this company, I think we would find that there's a dramatic turnaround priced in. That's what you see when this is up in the red, these things. That means like the market price is implying huge improvements in return on capital. And the business is really suffering. You've got negative economic earnings, negative return on invested capital, negative free cash flow, negative economic book value. Right? So, the no-growth value of the business. So, just so you know, the economic book value means is the value of the business if it never grows again. Negative $20 a share. Right? So, if it's trading at $20, the stock price is implying an enormous amount of profit growth. Enormous turnaround in the business. Enormous turnaround in the business. So what was the news with Intel? Not doing so well today. Yeah, it was a major overhaul to boost innovation. They beat, so we, we had that right with the strong beat. But yeah, the rest of the situation is not so good. Good question about nice earnings yields, or I'm sorry, dividend yields. Do we like to look at the credit ratings as well? Yes. So Allstate, Insurance, it's a nice business to be in during a tariff time. People got to have insurance no matter what tariffs are, especially property casualty business. We don't do credit ratings on insurance companies because the debt ownership is all weird. There's a holding company versus a bunch of subsidiaries. So, you don't really know who has the debt. But I would definitely say if you're looking at earnings, I'm sorry, dividend yields for companies, and that's a consideration, credit rating is definitely a good thing to look at. So is quality of earnings and so is free cash flow. You need companies that have enough cash flow to continue to support the dividend before you want to get into them. Southwest Airlines cutting capacity. This business is really hurting. This was a Focus List stock for us for a long time too. I think we did okay in it, but we closed it. Excuse me. Because the technology thing is an issue. Like to find that they were running this stuff on spreadsheets. Yeah, that's not going to be easy to fix. The prices aren't that compelling anymore. I think it has been a catalyst that the stock was taken over or made some major sort of turnover, private equity people come in there and kick some butt. I think that needed to happen. But look, what does Warren Buffett say? The great joke he has is that he keeps somebody on staff to do one thing, is to remind him never to buy airline stocks no matter what happens. So, take that for what it's worth. But yeah, I think they love— had a beat, didn't matter. Because they're cutting capacity. And look, you've already got a similar situation with what I said with Intel— bad business, expensive valuation. Fertu, financial stock. It's another one we like. Very attractive all across the board in our Most Attractive Stocks model portfolio. Strong economic earnings. This is one of those special stocks where the economic earnings are actually greater than the accounting earnings. Very rare, very strong sign. Add that to very attractive. This is one of our sweet spot stocks, friends. I will admit, if you've ever heard of some of our super stock bundles, special bundles that have done extremely well, yeah, this is criteria we like to look at. This is a special, special combination of criteria. So this is a good one to talk about. You got a strong free cash flow yield and also really cheap valuation. The stock price is implying profits will permanently decline by 60%. So that's exciting. That's a very attractive, very attractive— look, economic earnings above accounting earnings. I'm sorry, that's return on capital versus cost of capital. Economic earnings above accounting earnings here. Impressive. Very impressive. Spreading, getting better. So the market's not appreciating the profitability of this business. That's part of why we like it. Strong return on capital, free cash flow strong. Smaller business. Smaller business, $3.3 billion, 2.5% dividend yield. A lot of safety, a lot of upside, not a lot of tariff risk. This would be something to take a look at. So I mentioned that we would talk about tariff-proof stocks. I'll put this into the chat. This is a special promotion that we have right now for stocks that we think are tariff-proof. It's a very special limited-time offer. You're going to get 3 of these top stock picks, right? And they're going to have very attractive rating, uh, which we think is awesome. 3 Terror Proof stock picks and our 12— a 12-month access to the Stock Tracker 50 membership. All of that is for just $599, or savings about $3,000. So super good deal. I would take a lot— I would take a close look at that. All right, I also promised to talk about a couple stocks That you guys put in here. Let's go with. So Michael is in here first. CLS, CLS. I'm not seeing that ticker as a good ticker. Let's try the other one. PSIX. Don't cover either one of those. Sorry, Michael. Those might be small caps that aren't in our coverage universe. Let's see from Barbara. Aten, Aten Networks. We do cover that one. So good company, bad stock. I know what you're thinking about this. Hey, this is a good business, should be really good comp, good stock, but all that good news is priced in. That's what you see over here on the right. So yeah, I wish I had better news for you, but I don't. It is what it is. Okay, well, thanks everybody today for being with us. We covered a ton of stocks, and we'll be doing this again next week. Be on the lookout for emails telling you when to sign up. As always, please fill out the survey at the end. Love to hear from you. Appreciate the Q&A. Great question about dividend yields and credit ratings. Credit ratings, super important. It's good to understand both sides of the business because sometimes credit ratings can be great even if it isn't so good. There's a great example, really strong credit rating, not a great stock, and vice versa. So thanks very much for being with me today, and I hope you have a great weekend.