Watch Our Earnings Recap on Microsoft, Meta, Starbucks, Visa, Qualcomm, Pfizer, and More

Good to see everybody. Thanks for being here. It's been a very interesting earnings season. It's been a very interesting year. I would call this a bipolar market. Everything's terrible and it's going down, and we've never seen so many terrible fast declines, and all of a sudden it's bouncing back. I think we've recouped most of everything lost since Liberation Day. At least that was a headline I saw come across MarketWatch today. So with that, let me share my screen. We'll get going here, and we're going to cover a bunch of stocks today, and I'm going to move fast, but you guys can ask questions. So Q&A, hit me up. Let me know if I'm going too fast because we got a lot to cover, and I want to keep this interesting. And I think most of the time people find it more interesting when people move fast rather than slow. So let's go. Disclosures and disclaimers: we are not investment advisors. We do not pretend to be investment advisors. We're not registered investment advisors. You should get advice like that from someone else. We provide research. We provide truth. We provide insights. We provide the right stocks to invest in this kind of market. So interesting headlines: Microsoft. Huge beat, strong guidance. Meta impresses. Apple looking strong though, a little tariff worry. And we're going to do updates for a bunch of other stocks as well. So I think consistent themes that are starting to emerge, I think that are interesting— is the Mag 7 making a comeback? Because it's starting to feel that way. Is the entire market making a comeback? I got this headline recently: S&P 500 logs largest 8-session gain Since 2020, that's 25 years, folks. Nasdaq recoups all Liberation Day losses. So what's the new theme? Because what works today probably doesn't work tomorrow. What worked yesterday won't work today. You've all probably read the headlines about the shipping containers being down 40-plus percent. Maybe that's just a blip. Maybe we get the negotiations back on track. And everything's going to be just fine. Or maybe not. Maybe we could have a recession that's prolonged and pretty terrible. That's the way it looks. It could pan out as well. The question is, how are you going to find— how can investors find the right stocks in this bipolar market? What do you do? What do you rely on when you can't really sort of trust that there's a Fed put, a White House put? Earnings are all over the place. What do you do? Well, you don't trust Wall Street, right? You don't trust Wall Street because 50% of their stock ratings are almost always buy or hold. Same with Morningstar, other Wall Street firms. They are Wall Street firms. I mean, I call it a Wall Street firm if they get paid by their clients, the clients they provide ratings for, and Morningstar does. What makes us different? If you're new to this call, please let me know. Log that in the chat or the, or the Q&A. We've done the diligence. We do the work. We're honest. We're transparent. We want you to know how much work we do. Name another research firm that does that, please. And that work pays off in key data or insights that's often buried in the footnotes. And you don't have to take my word for it. You got MIT, Harvard Business School, Ernst Young. Please let me know if you know of another firm that has papers written about them that proves the superiority of their research. Cough it up, because as far as I know, there aren't any other firms. We're the best, period. So yes, we have different ratings and people write papers about us. How do we know that the data is better? Well, let's go with performance. How about stock picking performance? We've been ranked number 1 by SumZero every month for 46 straight months in at least one category of stock picking. By the way, SumZero is a series of Buy side is— I'm sorry, is a community of buy side professionals. These are professionals that we're beating out. Then let's talk about live traded indices, right? There's probably no better proof than just, just say how my very attractive stocks do. Hey David, how do the new constructs very attractive stocks outperform? Well, in the first quarter, up 9% versus the S&P 500, beat the S&P by 9%. Over the last 5 years, Beat the S&P by 80%. How about the core earnings weighted S&P 500 index? Right? This is our version of the S&P 500. So you you know I love to say, hey, I don't have to pick the stock. Somebody else can pick the stocks, but I'm going to weight them in a way that's going to allow me to outperform. So even if you don't believe in how we pick stocks, everybody has the right to believe what they want to believe. At least weight them based on our data. Proprietary data. If you'd done that in the first quarter, you would have been able to beat the S&P by 1%. If you did that over the last 5 years, you beat the S&P by 33%. There's a saying that I love. I've been saying it for a long time about new constructs. We have a section of our website that's been dedicated to it. It's called Proof is in Performance. Numbers don't lie. So I come back to what I say a lot. Trusting Wall Street research is like trusting the tobacco companies who said their cigarettes are not harmful or addictive. Trusting new constructs is like trusting somebody you know you can trust who's got real data that's transparent and reliable. We have a real solution built on trust. All right, let's talk about earnings. Here's today's big list. Let's take it by market cap. I'm going to go ahead and cheat a little bit and let's talk about Apple because Apple is having a very good day after hours. Let's see, for the last 5 days, it's up 3%. Year to date, still down 20%. That's not great, but Apple earnings show further weakness in China and the stock is down. I think the stock is doing well. Yeah, up today and, and still doing well. So look, they had great profits, they reported well, but they are warning about the future. So what does New Constructs say about Apple? Great company, bad stock. Look, this is one of the all-time most profitable, amazing Companies ever. Returns on capital. If we go back here and look, here's 60%. It was 300% a few years ago. They were averaging around 180% for a long time. Amazing for a large-cap company. Amazing return on capital. But guess what? Everybody knows. Why do you think Warren Buffett sold? Not because Apple isn't an amazing company, because it's expensive. It's gotten to the point now, I just can't grow profits that much anymore. You got competition from all kinds of places, all kinds of devices. And look, the valuation's expensive. So look, this ship has sailed in terms of a stock. It's a crowded trade. You got to go someplace else if you want real value. I'm not saying you can't follow everybody, follow the herd. I think if that's worked for you, great. More power to you. I don't think it's a long-term solution. Microsoft, similar situation. Except that the economics of this business have taken a bit of a turn for the worse. But knowing what I know about this company, I wouldn't be worried about that. This is still a great company. But again, you got valuation issues here. Even more expensive than Apple, right? You got a 3.2 price to economic book value here for Microsoft. You get 2.8 for Apple. You got a negative free cash flow yield. I'm not too worried about that with Microsoft. I know they're investing like crazy in data centers. They crushed the top and bottom line, crushed it. Amazing. And, and what if they're in a good spot? If any firm's in a good spot, Microsoft is, because they can benefit both ways. They can benefit from, from applying AI in their own software, and they're building out data centers like crazy to help power other people's AI. And they're investing in these small little nuclear companies that are going to be able to power an entire data center in a way that you You can't get from the grid because, by the way, the grid can't handle what we need to do in AI right now. That's a problem. It's a gating factor. No AI to the moon. Thanks, Gerard, for the note on Apple. Okay, down quite a bit after hours. Well, let's go back to— let's take a look at Microsoft. How's it doing? Bam. I mean, that's a nice looking chart. And look, I think people are looking for safe haven these days. And, and what do they, what do they go back to? Go back to what's worked. And I'm telling you, I got better ideas for you. I got better stocks because they're not near as expensive and they're going to do just as well in this environment. Look, folks, Warren Buffett says this all the time, right? There are stocks you can buy. If you buy them at the wrong price, it may take years, many, many years for the earnings to catch up with the value. That's what's happened here, right? And our next big training session on the 15th, so in a couple weeks, We're doing a special on one of our top memberships. And one of the things we're going to be pointing out here is like how little Wall Street looks into the future compared to what the stock price looks into the future. You get earnings estimates for a couple quarters or a couple years out. Microsoft stock price implies profit growth for Over 100 years unless you jack up the growth rate for like 20% for the next 10 or 15 years. That's what's going on. That's why it's expensive. We're talking about Wall Street's going out a couple, couple quarters, couple years. By the way, do they want you to go out that far or any farther? No, they don't want you to think about the fact that to justify the price of this stock, you need about 10 times, 20 times what they're estimating right now. There's so much future cash flow, future earnings that got to go into supporting the stock. They don't even want you to think about that. Oh, I can't forecast earnings more than a couple quarters. How can I do more than a couple years? You don't have to, folks. The stock price is already doing that. Stock price equals the present value of future cash flows. So there's a stream of cash flows implied by every stock price. Why don't we just take a look at what those are and see whether or not we think they're realistic? Those of you who've seen my reverse DCF case studies, If not, you should take a look. You're going to love these. We've got them all in the community. The community is free to join. We've got a huge ton of these, and we go through specifically what's got to happen to justify certain stock prices. We did some great work on Amazon, Rambus. We got one on here in Nvidia too, a secret weapon. This is a tremendous analysis, you know, talking about how we called the top. Nvidia a few weeks before. And why? Because the stock price implied cash flows that were greater than the GDP of Ireland and revenues greater than the GDP of Japan 20 years from now. That's what's going on with some of these stocks. That's why I say, hey, good company, bad stock. All right, we got to get moving here. Meta, another company with a strong quarter. And by the way, look, they're in a good spot too. See what we got here. Oh, here we go. We got some after-hours action. Flat last 5 days, up quite a bit. So Meta had a great report and they're getting into AI. Look, I think Mark Zuckerberg is a super smart guy. I mean, this is a company I would not bet against. I would have loved to have owned it when it was cheap, but it's gotten expensive. Is it the cheapest of the 3 we talked about so far? It is. It is. But anytime you see this, When we extrapolate consensus estimates, they don't go out that far, but we assume that's what the numbers are out over 100 years. We can't get to a stock price in our DCF that's close to the current stock price. So that's what this means. More than 100 years of profit growth baked into the current stock price at consensus estimates. You've seen a lot of the work we do, we'll jack the growth rates up to 10%, 20%, 30%. Compounded annually for 15 years, just so we can get it done, get that future cash flow growth done in a reasonable enough timeframe that people can get their head around it. Because people think 50 years, 100, I can't even think about that. Like, what does that even mean? It's real simple, folks. It means it is expensive as heck. It means it's really expensive. And this has become a speculative trade, not an investment. How about Visa? I love this business. These guys don't do anything. They just collect money. They built out the rails. For all these credit card transactions. And all they do is just count the money. Every transaction that goes through, hey, you know, you're using my network, you gotta pay me. Don't have to do anything. Maybe they do a few advertisements here and there. That's why you got a 40% return on invested capital. I think the margins in this business is crazy high too. Yeah. No PAT margin, 50+% margin. Yeah. I love you too. Great business. What we're seeing again here is, look, great economics, expensive stock. People figure that out. Where are you going to find good stocks? Watching the news? Listening to Wall Street? One of my favorite stats recently written by the Data Trek people is that the best performing stocks from Wall Street firms are the very few stocks that they give a sell rating to. When do they give a sell rating? When they've given up on getting the banking business. They capitulate. All right, whatever, it's going to sell. And by the way, at that point, that's when it actually becomes probably, you know, a good, a good, good time to buy. Not in general. I'm just saying their other picks are so bad that their sell ratings are their best, are their best buy ratings. That's how bad it is. All right, Visa. What happened with Visa in the news? It's up not quite like I think the NASDAQ, but we're seeing a little red today on a day it was pretty positive for tech-oriented stocks. This is not a tech stock. It's really more a finance stock, but it's, it's really all about technology. The rails for credit card transactions. All right, Coca-Cola. Let's go old school. What do we think about this? Ah, good company. Not quite as exciting or sexy, but still pretty expensive. I think their report was down a fair amount today, down last 5 days. So nothing great. It kept its full year forecast, but expects tariff disruptions to be manageable after Pepsi cuts earnings outlook. Pepsi, on the one hand, they're going to crush us. Coca-Cola, on the one hand, might be better. Who knows? Who knows? Who knows? Maybe these Coca-Cola guys are about to try to exercise some options. They want to keep the stock price up. Maybe the Pepsi guys want to issue some options. They want to tank the stock price so that strike price is lower. Booking, another one of my favorite companies because it has a 1,000% return on invested capital. Super profitable, super high return on capital. Economic earnings greater than accounting earnings. You guys know what I think about that. If you don't know what we think about that, then you haven't been paying enough attention to our training classes because this is an incredibly important metric. And this stock would be a screaming, let's get this baby, if not for the fact that it were expensive, right? So people, you know, they do their work. There's a, there's a fair amount of efficiency in this market. It's not a completely inefficient market. These really profitable companies have expensive valuations. What happened here with Booking? Flat for the year, come back a lot, was down until recently. So it's been part of this NASDAQ run. Yeah, you know, look, good company, bad stock. Qualcomm. I think we're seeing some red with Qualcomm. Yeah, so not looking as good for Qualcomm. Yeah, it's not recovered the rest of the S— like the rest of the NASDAQ has. So it's getting pretty, pretty crushed. How does it compare to, to, to Nvidia? Nvidia doing even worse, down to 111. Yeah, Qualcomm tops estimates but gives light revenue forecast, returning the tech holding's price target despite strong earnings. People are cutting back here a little bit. Wonder why? Well, and by the way, the strong miss, right, that counts for the earnings that happened today or the guidance. And proud to say we had— we would have— we called that one for you. You know, the stock has been up enough that it's a good company. Bad stock. 1.8. So again, it's the least expensive except for Coca-Cola that we have gone over today, but you still get 53 years, so it's not over 100. It's still in the red. And by the way, of the 5 elements in our rating system, which again do extremely well— here's a live view of our very attractive stocks. You want this URL? I'll put it in the chat. Significantly outperform year to date, five years, year to date, short term, long term, short term, long term. So doesn't get much better than that. Caterpillar. How about we look at an attractive rated stock? Everybody got one. All right. Finally, downgraded from very attractive, guessing because it's had a pretty good run here lately. It's so not quite as cheap as it once was. Year to date, down quite a bit. This would not be what I call a tariff-proof stock. I would find this company potentially very, very sensitive to tariffs. They do a lot of financing, a lot of sales around the world for this major equipment. But yeah, look, attractive, attractive rating. So I like attractive, but it's not one of my favorites. Like the fact that it's attractive, not one of my favorites. How we do in earnings, it's going to be very tariff sensitive. Pfizer, great business in general. These days, not so good. Wow, this is an opposite. Not such a good business, pretty cheap stock. So if you think they're going to get things turned around, yeah, this would be a time to, to get into this. You can see this had a pretty big drop in economic earnings. Accounting earnings looking a little bit better than economic earnings. That's not great, but you see big, big drop here, return on capital. I'm guessing this is probably due to a major acquisition, so we're going to see Big negative free cash flow number right here. The free cash flow is positive in the following year, so 2-year average is still a little negative. Yeah, it's going to depend on how well they digest that big acquisition. If you've got strong feelings about that, this could be a cheap stock. If you think this is going to change to something good, then this is going to be a cheap stock. Could be a great winner. How do they do in their earnings report? Last few days looking good. They beat expectations. EPS beats expectations, revenues lag. They expand cost cuts, top quarterly pro— tops quarterly profit. So they beat on the bottom line, miss on the top line, and they reaffirm guidance. So that's good. They're better fish in the sea. It's kind of a good way to put it. Spotify. Oh yeah, focus list short, zombie stock list. We just got a new filing. Great business, really high returns on capital. Love the economic earnings greater than accounting earnings. This might be the most expensive stock we looked at all day. 6.8 price to economic book value. I did a great reverse DCF case study on these guys. Here we go. If you haven't seen this, this one's pretty amazing. You get— they got to grow revenue at 28% compounded annually for 15 years. That's where we jack the number up so we get it like within 15 years, because if you don't, you get crazy. That would be $562 billion in revenue in 2039. Which is more than Apple's trailing 12 months. So yeah, it's 15 years from now, but that's a big number for a company selling something it doesn't even own, right? It beats Walmart's— only lower than Walmart and Amazon in terms of revenue. It also would be doing that kind of revenue with a 2,000% return on capital. Notice that these Really high, the top revenue companies in the S&P 500, they got pretty low returns on capital because you can't have scale and margins usually at the same time. Apple was an exception for that for a while. Apple was an exception to that for a while and still is in terms of a high return on capital. But it's down to like, what is it, 80? These guys would be at 2,400. Nah, not going to happen. Not going to be able to do both. Not going to do both. And the other thing to keep in mind is that revenue implication. Is 287% of the market. So right now, the worldwide music, radio, and podcast market, $125 billion rounding up. Spotify is 15% of that market. If they achieve the expectations, just the top line, forget return on capital, they achieve the expectations baked into the stock price, they're going to be 287% of the market. How many of you want to bet on that? I wouldn't bet. So good company. I'm a client. Love it. Hey, there's nothing wrong with being a customer of a company that's selling a product too cheaply to justify the valuation. That's all. That's good with me. I'll take advantage of that all day long. And I don't care what the numbers are because they're nowhere close to what got to justify the stock price. American Tower, one of the greatest businesses of all time, has always looked expensive in our system. And I don't really know why, but an amazing business, smart business. Doesn't look that good in our system again, but it never has. So this is one that's always kind of been a head-scratcher for me. So I've got some great friends that have worked at this company, and I know what it does. I mean, it's a brilliant concept. Done great this year. I think maybe it's just always been a little bit expensive, right? People figured out like, hey, we can make a lot of money if we build the towers independently, then we lease it out to all the cell phone carriers. That way they don't have to spend the CapEx or the maintenance. They get all the same coverage. So instead of every single cell phone company building their own tower, you have one independent company build it and then, and then license it back out. Brilliant model, super successful, and been great, great for the world to bring coverage everywhere. And you can see that, you know, it's been a great performer. Great performer, up 20% year to date. So yeah, unfortunately, this is one we missed. You know, it's heavy on the balance sheet, so returns on capital aren't always that great, but it's a ton of cash flow here. You can see, let's take a look at how much— I bet these guys are just crushing on the cash flow. Free cash flow, $4 billion, $4 billion, $6 billion, $8 billion. You know, could be a lot worse on a market cap of $225 billion. So, you know, you've got a 4% 2-year average free cash flow. Not great, but expensive. You know, people figure these out. Making money in the stock market long term is not jumping on someone else's bandwagon. That's a game of chicken. Who's going to jump off first? I don't like to play games of chicken. I like to play games of competitive advantage. Where do I have knowledge that other people do not that can be monetized? And that's what we do in New Constructs. We give people knowledge that other people don't have so that they can monetize that and have an edge in the market, period. An edge proven by the performance live of our rating system. Proof is in performance. Altria, the old Philip Morris. I love my favorite line about this business. The most profitable products are addictive products. That's something I teach my kids. I want them to understand that everything that they consume, the person selling it to them wants them to consume more. So they're going to put whatever they can in there to make them want it more. Because again, addictive products are better and higher margin than non-addictive products, right? Do you think Doritos taste super good for no reason? No, you can't eat just one because you're not supposed to. It's chemically aided to make you want to eat more of them and to not make you feel full. Anyway, yeah, Philip Morris, very attractive, strong return on capital, still cheap. I wouldn't bet against these guys. I think they had a great earnings report too. Up 13%. This is one of those I would call tariff-proof. It's not on my, on my list, but maybe I should think about it being on the list. People are going to get their nicotine, my friends, and now they're delivering it in a better way, right? Without the tobacco, the Zen, all that stuff. Like, people are going to get their nicotine, and by the way, they may need more of it if the market continues to be this bipolar. So this is a good-looking stock today. Very attractive rating, high return on capital. Less than one-year market implied growth appreciation period. Stock price implies profits will permanently decline by 30%. What's not to like? Impressive. Starbucks. Yeah, these guys didn't have such great earnings, did they? Didn't go so well for them. Down a little bit. Down. This is not, not great. Turnaround is working. So what happens when you get a company that's this big and you got a store in every corner? It's like What else can they do? And they'll probably be pressured into making a dumb move. That would be my guess, friends, is that we're going to see Starbucks probably make some big acquisition or do something you're like, what? No, it's topped out. You can only have so many coffee shops. They're also doing food. It's been a great business. Look, you know, you got green, green here, and valuation is great. They should be happy. They got a good business, and the stock fully reflects that. What's wrong with that? It just doesn't mean it should be that popular for investors. There's no reason to go out and sell this, but you certainly shouldn't be going in and buying it. Because I think there's agency risk here. They got too much cash. Let's see what kind of excess cash they have here. Excess cash of $1.4 billion, burning a hole in their pocket. I think you got some agency risk with that cash. I don't know they're going to return it all. They're probably going to want to do something to show investors growth, right? How are you going to grow when you've probably got too many Starbucks out there? How are you going to grow? You buy Tim Hortons? Ah, no. And you know, you're global already. Yeah, be careful with this one, folks. Been a great story. I don't think it's going to stay that way. Special treat, Snap, smaller stock. I wanted to talk about this one because it didn't quite make my list in terms of market cap, but I believe they reported Here recently got crushed. This isn't a I told you so story. I know you probably don't want to hear that, but look, $800 million tariff loophole could endanger. Why'd it go down more than 12% after withholding guidance? I don't really know how this sort of social media company in the US mostly would be that affected by tariffs, but they probably want every excuse they can get. We've written some good reports on the company, folks, and I recommend you take a look. Go to the blog and here you can find our reports on Snap. 14 reports. I'll put them in the chat here. Take a look at those reports. You'll see there's a really, really good case, intelligent case around why this stock is too expensive. And looking at Snap here, negative 11% return on invested capital, super expensive valuation. I, you know, I don't know what to say, folks. Be careful. All right, let's take a couple requests going back through the list. Let's go with the folks that were in here first. Gild, Gilead Sciences. Here we go. Expecting a strong beat on the next earnings. Economic earnings greater than accounting earnings by quite a bit. I wonder what's going on here. It had a big, big unusual charge on the income statement that we pulled out. We can look that up. Institutional clients can actually come in and say, okay, what do— what's going on there? And you can see here Operating income took a big dive because you have this in-process research and development, a huge impairment on the income statement. And so you pull that out, earnings are actually a lot better than what they appear to be. So this is probably showing up on a lot of other people's screens because it is expensive, because the E is depressed, but we're showing that it isn't— is not. So yeah, healthcare stocks like this, how's it done here recently? Those that are more sort of biotech, I always shy away from because it's more of you got insight into what the FDA is going to approve or not approve. And when I was on Wall Street, that's what these were all about. Like the biotech analysts were always talking about the FDA and whether or not they had somebody who had some insight into what was going on with the clinical trials and whether or not the drug was going to get approved. That's why we prefer firms like Merck. Or even a Pfizer, because they're not always in the business of making the drugs as much as they are in distributing the drugs. That's a better business. You don't have a lot of capital tied up and hoping that that drug hits. That's a riskier game. So that's Gilead. Looks good. If you think the pipeline is strong and the FDA is going to give them some thumbs up, this would be a great stock down. All right, let's do one more. I'm going to go here toward the end. We got one Reddit. I'm interested in this. Yeah, we wrote this. Call this the junk stock IPO. We were wrong. I think the stock has gone on to do quite well since the IPO. Yeah, just came out around $50, went up to $225, still around $100 a share. Yeah, you know, look, not a good business. They're not monetizing it. Will they someday? Maybe, to the extent that the stock price implies. I doubt it. I doubt it. Negative profits, not good. We don't have a lot of history here. And this is kind of one of those hopes, you know, it's like a popular stock. Who knows, maybe this is a meme stock because people on Reddit want to buy Reddit. I don't know, like the same people who use Robinhood and want to believe Robinhood. Maybe that's something they got going for them. I don't know. But free cash flow consistently negative here. I want to take a look at the economic book value. Economic book value is negative $45 a share. Negative, always been negative. Net income's negative. NOPAT's even more negative. I guess they got some gains they're using to overstate accounting profits. And assets just, you know, pretty high, $2.3 billion in assets. You've also got $1.3 billion in liabilities that probably nobody knows about. Related to options. They've granted a bunch of options. So what is that? You know, it's 1%, almost 10% of the market cap in option liabilities. Keep that in mind, folks. Those are all options that have a senior claim to you as an investor. Those options will— are outstanding and have a value of $1.3 billion is up as high as $1.9 billion. The higher the stock price goes, the more value of the option. So that's just a heads up on, on Reddit. There's more than meets the eye. And at New Constructs, we bring it all to your vision so you can have clear-eyed, honest truth and research to guide you in making smarter decisions. Thank you very much, everybody. I appreciate you being here today, and I will hope to see you tomorrow. At 10 AM Eastern, we're doing another one of these, going to cover a whole bunch more stocks, another dozen or so. Hope you can make it, and thank you for being with us today.