Watch Our Earnings Recap on Palantir, AMD, Uber, Snap, Shopify, Arista, Super Micro Computer, & More

All right, this is an exciting earnings season. You know, I mean, there's a lot of stocks going up and a lot of stocks going down by a lot. And it feels like the market is sort of petering out in terms of not so much of a rocket to the top, shoot the moon. Kind of trend that we've seen in the past. Let's get going here. All right, we're covering a bunch of stocks today. We got a lot on the list today. I added a few more since we sent out the emails inviting everybody because I just think there's some interesting, interesting stuff to talk about here. A lot of our danger zone stocks, like some of these guys are blowing up. I figure it's worth talking about because the thesis has been really very straightforward for a long time and it's sort of, well, Chicken's coming home to roost a bit. And I think that's an important takeaway. Disclosures and disclaimers. We are not investment advisors. We do not intend to be investment advisors. We are providers of information and nothing else. Speak up in the chat, especially if you're first time. We're looking for, for people who haven't been around before, and we want to make sure that you are properly welcomed. You have all the questions you get, you want to get answered, we take, we get to them. And then also don't hesitate to give me, send me questions. Or suggest stocks that we can go over from your portfolio. Put those into the chat, and if we've got time at the end, I will be happy to touch on those and review those at the end. So, let's talk about some of the headlines. Stock market seems a little shaky these days, up and down, not just up all the time. I mean, we had a July for the record books. I mean, that was like one of the least volatile Julys of all time, and it looks like August is not going to be quite the same. It's been, it's been rough. Today was good. But, you know, we definitely saw yesterday give back a lot of gains. The ISM Services Survey weaker than expected. We did see Palantir blow it out. Supermicro Computer blows up again. I've got some good info on that. You know, we were, we were warning about Supermicro a year ago. Well, 11 months ago, almost to the day. A lot of Wall Street upgrades, you know, into a bull market. You know, that's sort of one of the last signs is like, oh, they just, everyone just capitulates into bullishness. That's a Wall Street trademark. And then, yeah, Snap is snapping. It's a business model that we point out is flawed for a long time. And so I think it's kind of just a matter of time before the thing potentially breaks down. For those of you who do not know us, I think it's very important to understand that New Constructs is different. After years on Wall Street, I saw all the tricks that they pull. the misinformation and decided to build something better, a firm that gets people the truth about profitability and valuation, and to build technology so that I could do that with scale. One version of the truth across all stocks, ETFs, and mutual funds. Can't do that with a team of 20 different analysts, and each analyst has got a superego about their sector and their expertise, and they got to do things their special way because that's how they get paid. That's the Wall Street model. That's part of the Wall Street model. The other part of the Wall Street model is that they don't get paid as analysts. They don't get paid if they don't do what the bankers say. Couldn't have that either. So we have a centralized system for machines to do all the analysis in a very consistent way, apples to apples. And just in case you want to know how well that machine works, let's take a look at the stock picking track record. Been ranked number 1 on SumZero for 49 or 50 straight months. Our work has been vetted and validated by prestigious institutions like Harvard Business School, MIT Sloan, Ernst Young, the Journal of Financial Economics. Name another research firm that can make the same claim, and I'll give you a free report of your choice. And then look, here's the cherry on top: performance of our indexes. We have 3 of them with Bloomberg. This is the Very Attractive Stocks Index. All it does is track the very attractive stocks. It's a good thing. Very attractive stocks do very well. Outperformed by half a percent in the first half, outperformed by 77% in the last 5 years. The Bloomberg New Constructs 500, that's just a, an enhanced S&P 500. By enhanced, I mean instead of weighting stocks based on market cap, you weight stocks based on core earnings. How's that? How about that? Why don't we weight the stocks based on their underlying fundamentals? Just not on how popular they are. Well, that outperforms in the first half of this year and by 31% over the last 5 years. And then how about the Core Earnings Leaders Index? This is the— this is the fund or ETF based entirely on core earnings. It only picks the stocks that have the strongest core earnings out of the top 1,000 stocks in the market, the Bloomberg 1,000. Out of the top 1,000 stocks as ranked by Bloomberg. It beat the S&P 500 by 7% in the first half, by 48% over the last 5 years. Doesn't get any better than that, folks. Now, these indexes are managed by Bloomberg. They run it all. It's live traded. You can look them up. If you want a sample, just want me to show you, just put it in the, put in the chat and I can take you to the website. But they're not available for purchase. Yet, but this— our research is. It's good to have research that's backed by proven performance and vetted by the most prestigious institutions. It's not a bad thing, especially when you consider the fact that Wall Street ratings are like 96% positive. 96% of all stocks are buy and hold. And that's, that's something I want to make sure I'm clear on. It's because Wall Street analyst paychecks depend on you buying stocks. They make their— they make no profit from their research. It's all in the trading or in the underwriting, or that means in the issuance of debt and equity. You have to buy the securities from companies because Wall Street makes money selling them. Is it a conflict? Yes, it's incredible conflict. 57% of all stocks get a buy rating. Can we have an efficient market if 57% of the stocks are buy? No, doesn't make any sense. Right? But it's been this case for a long time. All right, I'm going to skip over this because we've talked about it a bunch. Why don't we just jump in to our analysis here? If you have any questions, let me know. Here's, here's what I was talking about in terms of the website for the Core Earnings Leaders Index. You can see here year-to-date up 13% while the market's up about 8%. So almost a double. 5 years, you can see beating by like 35%, 40%, 44%. This is the latest as of August. What is that, August 1st? Why would it be more recent? This is August 6th. Anyway, you get the idea. Proof is in performance, my friends. Alright, let's talk about the stocks we want to cover today. We are not doing Pfizer. That's going to be tomorrow. So let's talk about— let's go in order of market cap here and make this more fun. Palantir, $409 billion market cap. Stock went on a run. We like the business. It's good business making money. But the expensive— sorry, the valuation is very expensive. And interesting here, you got a -24 price-to-economic-book value here. What's going on? It must have a lot of debt. Oh, I know what it is. Huge liability related to options outstanding, $25 billion. So we're talking about a market cap of $409 billion. $25 billion of that is actually promised right here. You see these numbers right here? $25 billion of that is actually promised to— let me see if I can get a nice way to highlight stuff. No, doesn't look like it. $25 billion here. Oh goodness. $25 billion of options liabilities there. Sorry, I was trying to do some fancy markup stuff with the Zoom tool. It wasn't quite working. But you see that, that's a big number. That wipes out the value of— they got a positive NOPAT, but the economic book value is negative, right? What does the economic book value negative mean? Well, let's first of all look at accounting economic earnings per share and accounting earnings per share trending in the right direction. Number of shares going up, kind of not surprising. I mean, they're, they're— my stock's going— if my stock was at a price that high, I'd probably want to raise capital. It's such a good deal. Return on invested capital getting better. No net margin. Capital returns, all that getting better. Free cash flow about break-even, about break-even. And then the economic book value. Wow, you can see the economic book value was positive or negative at all times except for 2023, briefly positive, but it's basically next to nothing. Yet you see the stock price just— so that's, you know, the difference between these 2 lines is all future profit growth. So you're seeing a lot of future profit growth priced in. So Palantir, yeah, I know they had a big beat. It's really expensive, folks. Really expensive. All right, AMD. AMD didn't have such a good beat, did it? Let's go here. Let's go take a look at it. AMD's earnings weren't so good. It's down a lot. Let's see, down, yeah, 11%. Earnings miss. Boom, getting crushed. Why? Whoops. AMD, why? Super expensive. Not a great business. All right, if this is going to miss, you know, it's going to get crushed. That's just the danger of owning an unattractive stock. It's as simple as that. Super expensive here, 14.5 price to economic book value. You see the returns on capital are worse. You know, at least with Palantir, you got some profitability. But I would honestly say Palantir is just as risky because the valuation is just so high. It's just so high. Now it's better That the profitability here, we got green. So, you know, there's sort of a little more plausible they could grow into the valuation in terms of profits. But, you know, when, when the, when the expectations are that high, it seems unlikely. Uber. Oh, so similar situation. Green here, red here. It's expensive stock, folks. They're priced for a lot of market share, a lot of market share gains. No question about that. And I just don't know. I just don't know how profitable Uber can be long term. Like, I don't really think there are a lot of great margins in that business. I really don't, whether it's Eats or whatever. The stock's kind of flat. So despite the fact that I think they had a nice beat, a big buyback plan, pretty positive, you know, you didn't see— you don't see the stock doing much because it's all— all the good news is priced in. Let's see. See accounting earnings looking a lot better than economic earnings. Number of shares going up. I'm telling you, not a good sign. Insiders are just trying to cash in, cash out. Return on capital doing better. Margins doing better. Let's see, what do we got? Free cash flow. Yeah, it's gotten positive here recently and then but negative again. Yeah, I think long term, like they can put out a lot of specials and, and maybe, maybe Squeeze some profits out of, out of a business. But I mean, like, look, it's the taxi business. They start charging too much, I'm just going to go to Lyft or whatever local driver I can go to. You know, college kids now have like a bus thing that, that, that somebody started. I think that Michael Dell started, right? So it's, you know, they can just all go places together and they don't take an Uber or Lyft and they're like super cheap. I know other cities have different rideshare programs. I just, I just don't know if long-term profits are there, especially when you're looking at You know, a lot of, a lot of, a lot of expectations, right? Economic book value per share just now getting positive, you know, at around $15, and it's trading at $90, $89. What's a fair value? Probably $30. It needs more than 100 years of profit growth to justify the current stock price, assuming, you know, decent amount of long-term profit growth and, or revenue growth in general, and then really high profitability. So yeah, we think about Uber. Shopify. It's another super expensive stock in a business that I don't think has a lot of differentiation. I think we've, we've talked about this one quite a bit. It's an expensive stock. It's in our focus list short, strong miss. How do they do here? This is one I haven't seen any headlines on. Wow. Did extremely well. Tariff hit did not materialize. Revenue beat forecast, quarterly revenue above estimates and resilient demand. Looking good, looking really good. I would beware. I would beware. I'm seeing a strong miss here. So, you know, it doesn't look too bad in terms of core earnings, but as a percent earnings distortion, as a percent of assets, that's super high. That's a big number. So even though I guess it's— you got— you get the problem is the scale here. You've got a big variation in GAAP earnings. And so this earnings distortion number looks kind of muted. The difference looks muted, but this is interesting. I'm wondering what we're going to see this quarter. I'm get— I'm betting when we get the new information in, we should be getting it any day now. Next expected filing, 6-K. I'm betting when we get that in, we're going to see potentially an increase in divergence. That's probably what's going to happen here. So be careful with Shopify. Arista Networks, another neutral rated. Same, same story. Barista, very good-looking company, 109% return on capital. Love that expensive valuation. If this is sounding repetitive, folks, it's because it is. It doesn't need— you don't need to spin up a new special narrative for these stocks every time, right? There's one version of the truth, and you're focusing on the economics relative to the valuation. It's not that complicated. As my kids like to say, it's not that deep. It's not that deep. You know, either the valuation is appropriate for the stock or for the underlying business, or it's not. And appropriate is subjective, right? When we are quantifying future cash flows, we've put a system up to measure relative to other companies whether or not those are really high expectations. And when they're high, it's bad. And our stock rating system has done pretty well, right? You saw the very attractive stocks have significantly outperformed. So, it's not It's not terrible, not terrible. But Arista Networks, strong numbers, cloud momentum, guidance hike. So you got a beat, and we had a beat predicted. So look, the earnings distortion score, it's a short-term metric, right? It's a beat or miss, but it doesn't take away from the fact that this is extremely expensive stock, right? So I'm guessing we're going to see core earnings are above accounting earnings. So yeah, we expect them to beat. We expecting a beat, which means you might yeah you might see a nice little short-term pop, but long-term the stock we think is too risky, too risky, right? You want to see green across the across the board. That's what you deserve. Mercado Libre, same thing. Wow, it's suspended rating because we're probably getting the probably going through the 10-Q right now, right now. So we'll need to check in again tomorrow to see how this looks, but I'm guessing the valuation numbers aren't going to change much. Maybe the profitability gets worse. Yeah, you got, you know, you're down and then a down today and an up market pretty strong. That's because again, you've got an expensive valuation. When you're looking at, you know, here and you're seeing red out here on the right, you sort of got nowhere to go but down unless you've got, you know, unless you're playing on FOMO, MOMO, all that kind of stuff. Red over here means it's a speculative play. Maybe you like speculation. Supermicro. Suspended. Weak internal controls. Who remembers when we first identified weak internal controls in Supermicro? August 30th, 2024. What happened a few weeks later? The auditor resigned or announced it was going to resign, or they had a problem, then officially resigned in October. That's bad news, folks. That's bad news, right? It takes a lot for an auditor to resign because They lose a client and they probably lose a lot of other clients or potential clients because nobody wants to hire an auditor that's going to resign on them. Remember back during the tech bubble, they busted all these audit firms that were conflicted because they wanted to keep their clients in the consulting business and they like were fudging the numbers for Enron and WorldCom. And another, another HealthSouth, maybe another like hospital or Healthcare company. Yeah, I mean, come on, folks. Who we couldn't? Conflicts there. So like these guys don't want to have to resign. It looks bad. Makes them look bad. Makes everybody look bad. So when they resign, it's bad. And what happened to Supermicro? Oh wait, they had a big miss. And what's it down? 24% the last couple days. Yeah. Be careful with this one, folks. Be careful. You know, like you got red over here. Anytime you got red over here, just just watch out. Especially if, you know, you got false positive in economic earnings, right? Because accounting earnings are looking better than economic earnings. That's, that's a sign of a, of a miss for sure. Core earnings versus accounting earnings, not that big a difference. But when the underlying business might be weak because they've been trying to juice their own internal accounting to make it look better than it is, watch out. Simple as that. Watch out. When you see weak internal controls, that's a that's a sign to run. Don't walk, run from stocks where there's weak internal controls. A lot of red here. I don't know what to say except that the stock equity residential not looking so good. I think it's been a hot stock. No, not really necessarily. And you know apartments in a lot of big cities. Sixth largest owner of apartments in the United States. Big market cap company not doing so well, down 11.6%. Yeah, you know, look, nothing really redeeming about this low profitability business. You've got, you know, economic earnings really divergent here. I mean, I'm kind of surprised. Well, you know, both are going down, so I guess that's okay. Number of shares flat. But yeah, you got a big divergence between economic earnings and accounting earnings. That's never a good sign. Never a good sign. Tyson Foods. We just had to drop this from our focus list or our long list, mainly because I think these guys are going to be hurting when it comes to beef prices. It's going to kill their business. It's going to really hurt their business. They're just going to go way up. We're going to see demand go way down. So, but they had a good one. Higher beef prices. Power beating raise. Yeah, I guess it's a good thing. I think it potentially may mean that beef prices are going to potentially hit demand, and so people just aren't going to buy as much beef. I don't know about you guys, but like, yeah, like my beef purchasing has for sure shifted away from what I used to love to buy— strip steaks— and now we're more on the flank steaks and even doing some roasts because the You know, I was used to buying it for $9.99 a pound at Costco. Now it's like $15, $16 a pound. It's a big difference. We're buying a lot. I got like 3 boys. Like we crush a whole one of those 4-packs of steaks from Costco, one meal. And sometimes that's not enough. So yeah, well, good for Tyson. You know, you know, we're not, we don't, we don't, we, we'd like, I mean, I, I was a fan. This was on our focus list. So maybe we had the thesis wrong. Maybe they just make so much money on higher beef prices. I don't know. I think it, I think it long-term is more damage than good. Year to date, it's not been such a great stock, but good day today. Not looking so good here either. So, Snap. Oh yeah, I had to add this to the list. I mean, we've been warning people about this stock for so long, and it's because, you know, I mean, look, negative, negative, negative, negative, 100 years. Like, oh, I mean, I don't know if it was ever a zombie stock. Yeah, it was a zombie stock. They must have cut their burn. But look, you can see selling shares to fund the business. Return on invested capital way below the cost of capital. These guys can't make money. Negative margins, negative margins, negative margins for years, for years. An evaluation that implies Huge amount of future profit growth. Huge profit growth. They've never had profits, but the valuation gives them credit for huge profits. I just think this is dangerous, and I think they're competitively boxed in. Like, I mean, I mean, it's a kiddie product, and then kids grow out of it, you know? And who knows when the next app's going to come along? I'll admit my kids use it a lot, you know? I mean, I don't like it so much. I put time limits. I don't know if you guys know, you can put, you know, if you got an iPhone, I'm sure Android is the same thing, you can significantly and directly control How much time they get on their phones, and I do that a lot for my youngest. For sure, the boys when they get over 18, I'm kind of like, "All right, you're on your own." But yeah, it's this. It's a tough business. Negative, negative, free cash flow. Negative, negative, negative. Yeah, these guys could be headed back to the zombie stock list. I think they cut their expenses pretty good, so maybe the free cash flow, or they sold some stock and raised some debt. See here, see any diff? See any debt increases? Yeah, yeah, it's a couple years ago, but $4 billion in debt. Option valuation is not too much of a big deal. Tough business, tough business. Look at this— negative, negative, negative, right? Bad, bad, bad, bad, bad, bad stock, bad business. Never made any money. I don't know that it ever will. Rivian, similar situation. Focus List short. We've warned people about this for a long time. The investor relations people called me and said, hey, you know, talk about how we're going to get more profitable. I'm like, okay, good. I'm glad you're going to get more profitable. But the valuation implied or the profitability implied by your stock price is just way too much. Let me give you an example here of what we're talking about, about the improvements in revenue and profits that got to happen for Snap as an example. Let's take the optimistic scenario. We'll just put it in here. That's 18% compounded growth in revenue and a huge increase in your average return on invested capital spread, spread versus WACC, right? So we can go and look at the implied increase in revenue and profits. There it is. So you're going from kind of close to 0 up to Ah, $66 billion, baby, right? Where are we in revenue right now? That's $5.5 billion. What do they got to do for profits to justify the price? Hockey stick, baby. So negative, negative, negative, really negative, negative, turning positive and going all the way up to $5.3 billion. That's what's priced in. That's what's priced in. So to own the stock now You got to believe they're going to do better than that so the market will price in even better future profits. Return on invested capital, negative, negative, negative, up to 90%. That's like better than Facebook. Is Snap going to have a better return on invested capital than Facebook while also growing revenue compounded annually at 18% for 15 years? Come on. All right. I don't think anybody can make a straight-faced argument that that makes sense. Let's do the same thing for Rivian. I don't have another scenario for— maybe we'll put another scenario in here. Let's, let's give them margins that go up. Just try 10%. By the way, their margins have been negative 90 forever. Okay, so we're giving them a huge increase in margins. We'll save that off. We'll see if that makes the model look any better. In the meantime, let's maybe knock out another stock here. Hims. My buddy Herb Greenberg doesn't like Hims. Look, we just got a new filing in. Profitability looks good. Valuation—it's all priced in, folks. It's all priced in. How do they do in their most recent report? We had that strong miss. Looks like oof, oof, oof, oof! Excuse me. That's a gut punch. Big earnings miss. Well, don't say we didn't warn you. Strong miss. Core earnings. Look at that. Counting earnings going up faster. Bam. Bad sign. So we were helping you out on on Hims if you were paying attention. Okay, let's look and see if this optimistic. Okay, so we jacked up the the margin to ten percent. Not good enough. Why don't we try adding an optimistic scenario here? Want to give them like twenty percent margins. This is our reverse discounted cash flow modeling tool. So this is where we we figure out like what kind of future performance is required to justify the price. And so I think it's a really cool tool. I think it's an amazing tool. All right, here we go. Rivian optimistic. All right, 3 years. Okay, so what does that look like in terms of— you can see, you know, revenue goes from $4 or $5 billion up to $11.7 billion. Profits, free cash flow. We don't need free cash flow. Free cash flow goes from negative $3 billion to positive $2 billion. NOPAT goes from very negative to positive $2 billion. So yeah, it's giving the credit for the business to grow and become very profitable, grow at 33%. While also dramatically improving its margins. So what does that mean? That means they, they grow faster than the market. We all know the EV market is actually in decline, so they're taking crazy market share while charging way more. Does that make sense? You think they're going to do that? All of a sudden people are going to be like, oh, you know what, I could have paid— I don't know how much a Rivian costs— $70 grand, but if you charge $140,000, I'll go buy more. What do you think? Unlikely. Watch out for Rivian. Open Door Technologies— added this because it's, it's been on— actually, it was on our Danger Zone focus list short as well as zombie stock list, and we took it off because I think it started trading under a dollar, and that's kind of when we close out the zombie stocks. It's come back some here recently. Let's see. Yeah, see, we closed it out around here. Meme stock. Boop boop. What happened? What happened to your meme stock? Watch out. Watch out. Down 25% today. 200% for the year. 18% year to date. Watch out. This is this is one to be careful of. You know, if we were more trading oriented, we probably would have like come back and been like, "Yeah, yeah." You know, let's put this back on the list. We kind of don't mess with meme stocks. We don't take them seriously. All right, I got time for 2 requests. First, that came in here, AMCR, and then UNH. All right, let's take a look. Where's AMCR in the market cap stack here? Amcor, neutral rating. Yeah, it's a meh stock. I believe that the strategy for investing should be In the fat tails, the stocks that are underpriced and more profitable than you think, buy those. The stocks that are overpriced and less profitable than you think, sell those or short those. That's where to play. I want to play where Mr. Market has it wrong. I want to be a critic of a fortune teller, not try to be a fortune teller. And so with stuff that's neutral, it's like, yeah, like most of the stocks in the market are going to be neutral because the market is semi-efficient. So right, there's— you don't play in those. And that's what you got with Amcor. Not, you know, so it's nothing really strong either way. But if you're going to go out there and try to beat the market, what do you got to do? You got to go against the herd, do things that other people don't do. That, that means you probably don't mess with the neutral stocks. All right, UNH. This is a tough one. You know, it's cheap, super cheap, right? It's come down a lot. What's it come down this year? Yeah, 50%. But you know, you get some questions about the business model. DOJ probe, like, I don't, you know, the stock price implies a permanent 30% decline in profits. Maybe that's the way to go. You can see here the analyst notes. We got a lot of detail. We cover the stuff. We suspend things when they look nutty. It's a cool part of our— this is all, this by the way, is our professional membership. All that I'm showing you is part of our professional membership. So a lot here. including a credit rating. Still looks pretty good. Yeah, you know, I'm just— I'm not— again, neutral. And then you've got overhang of regulatory and legal risk. I was like, I wouldn't mess with it. Okay, thanks everybody today. Enjoy being with you. If no more questions, we will sign off and I will see you on Friday for another Earnings Watch.