Watch our Special Webinar: The Next Market Shift is Already Happening

Happy Thursday, everybody. Let's get going. So we're talking today about the market shift that is already underway. I like to say that this is a time when fundamentals matter, when we've got wildcards. Noise, tariffs, whatever you want to call it, right, coming at us from all directions. It's very difficult to find our footing in this market. It's been tough. And what do you have to rely on in a market like that? What do you look at? What matters most? And what I've been saying for a while is that, look, fundamentals have been in the back seat with Momo and FOMO and meme coins and Roaring Kitty in the front seat for a long time. We've had clowns driving the bus, I would say. And the clowns are in the back seat now. They're still making some noise. They'll have a day every now and then. But for this year, fundamentals have mattered. And let me tell you why I'm saying fundamentals have mattered. I'm talking about performance. This is an index, live index run by Bloomberg, the Bloomberg New Constructs Ratings Index. It's based on our very attractive stocks, right? It's an index. Focused entirely on our very attractive stocks, right? And over the years, there's anywhere between, you know, in lean time, really expensive markets, I think there's maybe as few as 20 very attractive stocks. And I think there's many, as many as maybe 150 or so. But really, you know, always around under 5% of our coverage universe, right? So it's a very select group of stocks. So far this year, that index, Very attractive stocks index is up five percent. The market's down three percent. So I'd say outperforming by a large amount, right? So and we're fundamentally focused shop. I think the best fundamentals. In fact, our fundamentals are so good that if you just want to focus on our our measure of core earnings doesn't take into account the balance sheet, doesn't take into account nearly as much many things as our rating system, right? Our rating system is. Super robust. But if you want to boil down just to core earnings, a better measure of earnings, a better— a measure that's so much better that, that there's a paper published in the Journal of Financial Economics, one of the top 3 peer-reviewed journals in the world, proving that these core earnings numbers are superior. Well, the real way to prove that is to, you know, run it in the stock market. And this is an index that's based on the core earnings leaders, or those companies that have the strongest core earnings, as distinct from reported earnings, Wall Street earnings, pro forma earnings. All the other numbers are BS. This is the one true number for core earnings. And guess what? When you have a fund based just on that, or you have an ETF just based on that, it's up 1.75%. The market's down 3.25%, outperforming significantly already this year. And then I got one more index for you, the Bloomberg New Constructs 500. This is an enhanced version of the S&P 500. So I say you can pick the stocks, I'll still beat you. Well, however you want to pick those stocks, I'm going to weight them based on my proprietary core earnings. And that'll outperform however you, however you want to weight those same stocks. Again, I'll, I'll even, you know, I'll, I'll, I'll cook with your food and I'll still make it taste better. And this is the Bloomberg New Constructs 500 Total Return Index. It's the core earnings weighted S&P 500 as opposed to market weighted. And again, it outperforms as well. So when we're talking about better data, We're really talking about better data, and we're also talking about fundamentals mattering. Most of the last 10 years hasn't mattered that much. Has core earnings mattered over the long term? Yeah. Look at this, 100 over on a 5-year period, up 163% versus 123%. If we go back to the Core Earnings Leaders Index, dominates by even more, 171 to 123. The very attractive stocks, almost double. So fundamentals, I like to believe, always matter, but there are seasons in the market. We've been in a really long season where fundamentals haven't, I think, mattered that much. You know, I mean, DoorDash, Tesla, Carvana, you know, it doesn't make sense. And so we're talking about the Mag 7 right now, and one of the reasons I'm saying we're going to see a shift is that the Mag 7 have had their day, my friends. Some of these are great businesses. I'm sorry, all these companies except for Tesla are great businesses. We go in here and we look and you see quality of earnings. Apple, unbelievable, amazing business, super strong economic earnings. In fact, economic earnings are greater than accounting earnings. Those of you who are clients of ours know that that's a very special thing. We actually sell a proprietary stock bundle based on that metric alone because it's so good. But guess what? The valuation's gotten ahead of it. Not ahead of it, but it's full. Valuation's full. The expectations are already really high. It's expensive. Apple's expensive. Trust me. Do I wish this stock was trading at a price-to-economic-book value of 1.0? Do I wish the stock price had a market-applied growth appreciation period of 1 year? Do I wish that it had no profit growth baked into it? Heck yeah, I do. But even Warren Buffett, he started to trim it. It's gotten expensive. It's become a crowded trade. The Mag 7 is a crowded trade. It's been that way for a long time. It was easy for a long time because everybody was crowding in. And it wasn't just stocks like the Mag 7 in the beginning, right? It was GameStop, AMC, Hertz, right? These were joke stocks. And what I think would happen, we saw some maturity here in the market. Right? Notice that these, these non-MAG 7 stocks, bad companies and bad stocks. When we look at just the MAG 7, right, you'll notice the credit ratings are all really good. Even Tesla, good credit rating, right? When I say good credit rating, what you're looking at there, right, you got strong quality of earnings here again for Meta, right? Same, same exact— like, the, the pattern always is the same. Great company, Bad stock. Credit rating is great because credit ratings tend to not take into account valuation, not stock market valuation, because the debtors don't care. They just want to make sure there's cash flow there. Well, for all the Mag Seven companies, great cash flow. What I'm getting at here is that the original meme stocks, right? They've never had cash flow. They were bad companies and bad stocks. And what I think would happen is that investors got smarter, like, well, I can. I can bet on some of these meme stocks and it might go up, but man, my downside is huge because this is a terrible company. People started realizing, oh, wait a second, I could play the same game in Berkshire Hathaway or Meta or let's see, BRK. I could play the same game in Berkshire Hathaway. I could play the same game in Nvidia, Google, Meta, whatever. I could play that— this meme stock game in good companies. So my downside isn't as much, except that the valuations here have gotten pretty nutty, really nutty. I don't know how many of you have seen my case study on Nvidia, but what we're looking at when we look at a company like Nvidia is a valuation that implies some extreme levels of profit growth. And revenue growth, and the same is true with Tesla. These are two that I like to pick on because the numbers are so astronomical that it's fun to go over this. And I went over this a little bit as well yesterday, and this will be fast. But the you know that one of the main takeaways for Tesla is that you know first of all there's a a lot of debt. You got fourteen billion in debt. You've also got sixty billion. And option liabilities. These are all the options out there. We know Musk has got a lot of options coming to him. He's going to move out of Delaware into Texas. He's going to get this option package. But that's a draw on the— for the marginal investor, the next investor, that's a liability that's got to get paid before you get paid. So the economic book value of Tesla is negative, or the no-growth value of Tesla is negative, right? And that's where we analysis we do on all of our companies where we look at, okay, if I want to break the stock price down into how much is bird in the hand cash flow today, and then how much of that stock price is dependent upon future growth. And so the way you look at the value of the stock based on future growth is to, to subtract the value of the stock based on existing cash flows. And the calculation for that is economic book value per share. And there's a spot on our website, education. I can give you the value. I can give the formula for it. We show all the formulas. We show all the data. But it's the perpetuity value of the net operating profit after tax, or NOPAT over WACC, plus cash minus debt and a bunch of adjustments. The takeaway for Tesla, it's negative. The stock price is 110%, all based on future profit growth. How much profit growth? Well, I can show you. So I've built an optimistic scenario in here. So that my DCF model would produce a value equal to the current stock price or the latest closing stock price within 10 years. In order to do that, I had to put in revenue growth of 30% compounded annually for 10 years, and I had to show a return on capital versus cost of capital spread of 115% on average for those 10 years. You can see These numbers pretty big compared to what the company's done. You know, Tesla's no longer a growth story. Negative, negative last year, went down. It's not a growth— not a decelerating growth story. It is not a growth story. And I think it's only getting worse when you look at market share. Anyway, the point is 30% compound annual revenue growth. That's a big number. Well, our model's been going to actually look what, what revenue is implied By that 30% CAGR, that's $1.3 trillion in revenue. Okay, $1.3 trillion in revenue. What does that mean compared to— let's see, GDP rank for top global economies. $1.3 trillion, it's not too far behind China. So I would say that's a big number for Tesla, right? By comparison, I'd say that's a pretty rich stock price. How about if we look at the operating profit after tax? What is that? $196 billion. I've got an analysis of the S&P 500 stats, and I rank them all by net operating profit after tax. This is from February. I'm not giving you away all my data. All this data has been changed and updated. But you can, you know, at the beginning of the year, the best NOPAT in the world was Apple at $109 billion, and Tesla is expected to get $196 billion. We'll be more profitable than Apple in 10 years. Anyway, I think it's safe to say the expectations baked into the stock price are really high. If you divide the revenue number $1.7, $1.3 trillion by average selling price of vehicles, you can get to the implied number of cars that Tesla has to sell. And you can compare that to the total expected electric vehicle market. And you get, you know, you can get that— the takeaway, the answer is even if you haircut this and say only 70% of revenues are going to be car revenues, The numbers come out to where like Tesla's expected to have like over 50% of market share. And I don't think they have that today. And I think we know that their market share is declining quickly. The point is in all of this, everybody, that the MagShares have seen their time. The Mag 7 have seen their time. Uh, and the junk stocks have seen their time. The goal, the key is to switch to attractive stocks. Stocks that have good fundamentals. How about a good company and a good stock? And in our system, we've got a lot of those lists. Our most attractive stocks list. Look at all that green, right? And what you see here is, you know, when we look at one of these, good company, good stock. A lot of times, and I'm, and I'm big on, on valuation, especially when it's super cheap. This ratio, 0.6. Right? Tesla has all that future growth baked into it. This has future profit decline. This stock price is implying the company's profits will permanently decline by 40%. That's great risk-reward. That's what you're going to see in the most attractive stocks, large cap, small cap, bunch of the same thing. Bunch of great, great opportunities in terms of risk-reward. Same is true with our executive compensation aligned with ROIC. These are stocks that get a good rating. And the executive team is paid based on return on invested capital. Like they get paid if they improve return on capital or economic earnings, not if they improve non-GAAP EBITDA. Right. In fact, let me— let's look up a report we just did recently on CoreWeave IPO report. And yes, we think this valuation is rotten to the core. Yeah, revenue is growing, profits are still negative, super high concentration in customers. And by the way, those customers are likely to be competitors, right? Microsoft Azure is buying data center space from someone else when they're in the data center business. Yeah, they'll in-house that stuff if margins ever get too high, if prices ever get too high, right? And the other thing to keep in mind is that here's what Here's what CoreWeave talks about. Here's— and Carvana does the same thing. Oh, hey, guess what? Our adjusted EBITDA is looking great. And a lot of times executives are getting paid based on this adjusted EBITDA. That was the case with Uber. And the first thing they did when they decided to turn around their business, when the market tanked a little while ago and the venture capital people said, you better start running this thing like a real business. First thing they did, got rid of adjusted EBITDA. No longer a metric. Companies are using adjusted EBITDA to run their business. And you might as well just— you should sell your shares right away because they're getting paid to run the business into the ground. You can see this. Look, here's how adjusted EBITDA looks compared to accounting earnings and economic earnings. They're negative. They're terrible. They're not doing well. What are they showing you? They're doing great. Turn and run, my friends. Turn and run. So Stocks and companies that are paying executives based on real shareholder value-creating metrics, those are gold. This is my favorite model portfolio, favorite model portfolio. And there are not a lot of companies that we can identify that really do this well, right? Because it's important that they are aligned to the right metric, and it's important that they measure it correctly. It's a great story, a company I won't name. But we were partnered with Ernst Young. We were pitching them on using a better version of return on capital, you know, using new constructs to run their business. And that's a— this is a whole separate channel for us is executive compensation, corporate consulting, right? Companies need to know objectively how their business is doing and how their competitors are doing it. And that's a third-party business for this, and the same reason that a hedge fund outsources administration. Like, they don't need to be measuring their own performance. Neither does a company. Because when they do things like what I'm about to tell you, this is a big company, big industrial company. They talked about their return on invested capital. They were really proud of it. We looked at it. We said, hey, there's a lot of adjustments in here. It's not so good as you think. It's been doctored intentionally, unintentionally, I don't know. But your return on capital is like half of what you think. They're like, yeah, yeah, whatever, you're wrong. A few weeks later, they went out to the public and said, oh, hey, By the way, we got this great, great return on invested capital business. We're creating value. So what we want to do is plow more capital back into our business. So we're going to cut our dividend a little bit because we shouldn't be giving the money back to you when we can put it to use at such a high return on capital. They lost 20% of their market cap in the next hour. Because guess what? The market knew what their return on invested capital was, and it wasn't what they've been telling themselves. So that matters. We've also, for you, those of you that are really interested in dividends, We got a large-cap dividend portfolio. I'm sorry, safest dividend portfolio. Safe means they've all got strong free cash flow. People think about dividends all the time. They don't take into account, does a company have enough cash flow to generate, to, to, to, to support the dividend? You know, and a lot of times it doesn't. You know, and this is a, it's a great example. Like when we, when we write about these kinds of companies, right, we will do an analysis. We'll show what is their free cash flow Look like compared to dividends, right? Free cash flow way bigger than dividends. That's good. That's a safer portfolio. It's a safer stock. It's a safer stock. Dividend growth, like you want growth stocks, right? Dividend growth. I'm sorry, you want stocks that are growing their dividends? We got that too. By the way, they've all got good free cash flow as well. We're not going to put it— we're not going to roll out a bunch of crappy dividend stocks out there for you, right? That's not our style. Not our style at all. All right, so I'm gonna, I'm gonna pause here for a second. Any questions or requests? I am happy to share or look up some tickers for folks who are interested in those and, or, you know, have any, any requests and also take some questions. DIN, Roger Green. Let's take a couple requests here. DIN, Dine Brands Global. Safest dividend model, safest dividend yield model portfolio, attractive rating, decent business, very cheap stock. Roger, it's super cheap. The stock price is implying profits are going to permanently decline by 30%. We got a pretty— we got a 10-K pretty recently here. So pretty recent data. Pretty highly indebted business. So credit rating is a little bit— yeah, that's not good. A lot of leverage in this business, it appears. So if we go back to the stock rating and we go here and look at the rating breakdown, let's see, $1.7 billion in debt. What's the market cap here? $24 billion. So yeah, not a great business, really cheap stock. Interesting situation. If you are interested in the stocks that we think are the best right now, like the stocks on sale, I am doing a training in a couple of weeks talking to people about how to find those. There's a link to register for that. But we are going through our system right now and we are identifying the absolute best stocks to buy. And as those of you who follow us, we have great model portfolios. They outperform well, right? I mean, you can see live tracking of 5-year, year-to-date. You know, we're killing it. For our very attractive stocks, core earnings. Look, there's there's real alpha in our data, and we are you know we're learning more all the time. The very attractive stocks index was was has been around, or very attractive stocks have been around for like almost twenty years since 2005, right? Core earnings that's only been around for like the last five or six years. We developed that in partnership with Harvard Business School to create a metric that could be apples to apples. With accounting earnings, adjusted EBITDA, Wall Street earnings, all that stuff. And, and, and it's proven to be superior. The idea was we needed an apples-to-apples number. And, and so our numbers, our raw data is so good, you get alpha just from that in the short term and the long term. So what does that mean? We're figuring out new ways to pick our stocks even better. So we've done some stuff. We call them bundles, Super Stock Bundle, Alpha Stock Bundle. Those bundles have done extremely well. They've outperformed the market since we've published them, and they've outperformed them in our backtesting. And so we are mining our data system, our proprietary data for new ideas, and we got some new ones coming out in a couple of weeks. I'm actually really excited because I know there's a bunch of stocks that have been beaten down. You know, one of the, one of my good friends is a hedge fund client a long time ago. He had a couple of great sayings. Number one was it's going to be a bull market no matter what. Doesn't matter valuation, fundamentals, unless there's a liquidity pinch. Liquidity pinch. That's what caused— that's what causes a bubble to pop. That's why we're not seeing a bubble pop right now. We're just seeing an evening out. This is perfect. This is honestly my thinking, like, as a fundamental investor, as someone who cares about the world long term. We needed to take a break. There was too much capital, too too concentrated in too few companies. They were cornering the market. And, and by the way, those valuations were foolhardy. Tesla was never going to maintain its first mover advantage forever, right? Tesla's PE is like 120. The PE for BYD is something like 10, and BYD's revenues are higher and they're growing faster and they got a better charging system, right? There's real competition out there. DeepSeek. Nvidia is not going to own the world. Neither is Microsoft. Neither is Google, right? There's competition, and it's healthy for us to distribute the capital and the value to more companies, not overly concentrated in these companies so they can spend too much on lobbying and bending the rules or breaking the rules or forming the rules to suit them. So I think these things are good. I think the economic Turbulence here is healthy. We're shaking out some of the bad actors, some of the overspenders, and we're going to reallocate capital to companies that deserve it more. And I think that's a smart way to go. I think that makes us a better company. I'm sorry, it makes us a better country, makes us a better market. And the best way to do that is, I think, to use New Constructs Research. There's no better fundamentals. Whether it's the Journal of Financial Economics, whether it's Ernst Young, whether it's Harvard Business School, whether it's the various attractive stocks index in Bloomberg, whether it's core earnings, whether it's just weighting based on core earnings, we're outperforming. Proof is in performance. I don't know what else to say, folks. And then we make it really easy. Type in a ticker, get an answer. Any other requests? I'll take one more request before we go. Type in a ticker and get an answer. CSTM doesn't look like we cover that one. Yeah, I mean, we've got another one. Maybe that's not a real ticker. And by the way, it works for ETFs too. You want to see— you want to make sure you're in the right ETF? Check it out. We got screeners for ETFs and mutual funds as well. Hey, give me all the very attractive rated ETFs, healthcare. And I want large cap. Go. There they are. Not many. Okay, I want a greater than a billion, and I want total annual costs less than 1%. There's the list. Quite a few of them. Quite a few of them, right? And then of course we've got screeners. Screeners. Amazing screeners. I'm not giving you this away, but it's pretty amazing. Like you go in. Say, listen, oh, and I'm going to do all this upside down. I'm going to show you the worst. I'm not going to show you my best because I can't give away too much milk for free, if you know what I mean. So, I want to get all the very unattractive. You probably want to go for attractive, right? In the healthcare industry, and I'm going to boil down to equipment and supplies, and I want return on invested capital to be— probably want to go greater than, but I'm going to say less than 10%. Go. There's the list, right? You flip it around and do it for attractive. You can do it across all sectors. All right, same idea. Boom, in a second you get an answer. By the way, this is screening with precision, folks. This isn't screening with some crappy tool that just helps you get down to a smaller universe. Screening with precision. All right, one more request here before we go. BWXT. Type in a ticker, get an answer. All right. Suspended. Large acquisition. If you're a client, you ever wondering why something's suspended, we'll give you the cause. You want the definition? Just click on analyst notes. We explain all the reasons it will be suspended here. By the way, there's also tons of education. Every single metric. Remember I told you the price-to-economic book value ratio? You want to see the education page on that? There it is. It's an education page for everything we do. Here's the rating. It's, it's neutral. Pretty good company, pretty expensive. Not terrible, not good. Neutral and suspended. So large acquisition just means that, like, they just did a big acquisition. We need to see the financials on how that acquisition will manifest on the income statement, balance sheet, and the footnotes before we can feel as confident as we would feel with that data, right? So we're going to wait till that data comes in. And, you know, the other thing, everyone, is that if you ever want to know For example, if we're looking at adjustments, you can see 3.32 and hidden revenue that we're adding back here. If you ever want to know where we get these numbers, we'll show you, right? Where is that hidden item? Oh, there it is. Amortization of prior service costs, 2 spots of it for their pension and their other benefits plan. That's where it comes from. Boom, right to the notes. We tell you there's that 3.32 of of non-operating revenue that we're pulling out. We will show you where all the adjustments and data come from. You see, our data goes all the way back to 2012. I think it's when this company was probably born. Otherwise, we'd have data back to 1998. Anyway, it's that level of transparency and honesty that is a hallmark of New Constructs. It's the reason why Bloomberg wanted to make indices based on our data. It's the reason why Harvard Business School and the Journal of Financial Economics published papers proving our data is superior. We can prove it. We can prove it with performance, we can prove it with data, and we can prove it to you. So thank you very much. Again, if you're interested in our next proprietary picks, as we learn more and more about how to take advantage of this proprietary footnote data and the superior data, sign up for that, for that webinar. And otherwise, I hope you enjoyed this today. Please give me some feedback on the survey. I love hearing that. Thank you. Have a great day.