Welcome back everyone. Thanks for joining.
This week is one of the busiest weeks in the market.
In fact, in terms of earnings, this is it.
This is like the Super Bowl of earnings.
We have all of the big companies outside of Apple.
We have Microsoft, Google, Visa, Amazon and Meta all reporting
this week. And what I hope to do in this
video is give some preview of the earnings, some insight and
background into what I expect and some context into what these
companies are doing Now. If we look at the full week
ahead, it's very busy. It it's not much going on on
Monday. That's why I record this video
today is because on Mondays we have companies.
Most of them, they're just not that meaningful.
No offence, but none of these companies really move the needle
when we get into Tuesday. That's where things get really
explosive. We start off the day with
Coca-Cola, Verizon reporting earnings.
We have other companies like 3M and then we have Spotify as
well. Now you'll notice that I've
circled some of these in red and those are the ones that I'm
going to be reviewing in this video.
So we're going to be going over Coca-Cola, Verizon and Spotify.
We'll also be looking Tuesday after close at Microsoft,
Google, Snapchat and Visa. Now earnings Whisper in their
calendar left out a couple companies, so I added them in.
So these are ones that are reporting earnings tomorrow as
well. We have Canadian Pacific and
Vici. I added these in because both of
these are companies that I own. I think they're important
companies as well. Now we move on to Wednesday.
Wednesday is a big day as well. We have Thermo Fisher
Scientific, that's a very popular, high quality company.
A lot of super investors are in it.
That one's reporting earnings Wednesday, market open.
Then we of course have Texas Roadhouse.
That is one that I've been talking about for a while.
I own a huge stake in Texas Roadhouse.
They're reporting earnings as well.
Then we move on to Wednesday after close.
We have meta, they're reporting earnings, highly anticipated.
We have Thursday. Thursday is the last big day of
the week. We have MasterCard reporting
earnings, so we have both Visa and MasterCard this week.
We have a company that I haven't talked about a whole lot, but
it's one that's being passed around on the the Fintwit and
the Internet, which is Tractor Supply Company.
It's a retailer. They're reporting earnings.
Thursday market open, then Thursday market close.
We have a huge holding of mine, which is Amazon.
I'll be spending some time on this one, giving some thoughts
into what's going to be happening.
Then Thursday market close. We also have Chipotle, another
company that I own. This is one of the the companies
that Bill Ackman owns as well. So that's a full look ahead and
we'll be going over again each of those that were circled in
red to give context and insight into what's happening with these
companies. Now I must mention before we
even start off that I'm not just someone that talks about stocks.
I actually invest in them. I have public holdings that I
track every single week, week by week.
So if you want to see how these portfolios do, I have two
portfolios. The Story fund is one of them.
This is a tech portfolio that I started more recently during
2021, and I'm investing in a a very concentrated group of
companies, 6 positions, $150,000.
This is all my money. It's all real.
I've invested in companies like Amazon and Netflix is my two
biggest holdings. Netflix just reported earnings
last week along with Tesla. Tesla's earnings were a little
disappointing. That's a company that I I've
avoided so far, but I am invested in Netflix and their
earnings report was incredibly strong.
It was there's no other way around it.
It was an incredibly strong earnings report and I see more
of a bright future for Netflix. So I'm going to have an update
on Netflix and an in depth dive into that company's analysis
tomorrow on this channel. Now the other portfolio I have
is the passive income portfolio. I've been following this one for
some time and again the goal here is to show transparency,
show you what I'm investing in. You can follow week by week.
I follow this one on my other YouTube channel, Joseph Carlson.
And the goal of this one is largely the same.
It's concentrated into a group of companies that I consider to
be incredibly high quality companies, ones that are in the
top 1% of the top 1%. I call them compounding
machines, but they're companies that have extremely reliable
earnings growth. They have very low debt.
They have high barriers to entry.
They're all around very difficult companies to compete
with and they continually compound year after year after
year. So when I talk about these
upcoming earnings, I may hold positions in these companies.
In fact, many of them I do. And I'm giving you my
perspective on how I think this will turn out.
Now we'll start off here right at the beginning Tuesday market
opening, so tomorrow market opening, we have Coca-Cola
reporting earnings before the bell.
I like Coca-Cola. I think it's a solid holding.
Warren Buffett I think does a, he's done the right decision in
just buying this company and holding it long term.
Now I also like with the management of Coca Cola's doing
making their company more capital light.
They're also bringing down debt. If we look at the long term debt
trends, let me zoom zoom in on this over the past 10 years,
let's just take a look at debt alone.
Notice it's going down over time, the total debt and long
term debts going down over time, which I like to see.
I would be a little bit more concerned if it was just going
up over time, but then we also have the cash increasing over
the past 3/4. So debts going down, cash is
increasing. I like what I see there with the
balance sheet. I also like how the company's
positioned. They have an extremely strong
portfolio. Coca-Cola is a safe haven.
I think it has a decent free cash flow yield of 4%.
It's not price too high. The one reason I don't own this
company is when I when I do analysis on companies, I'm not
just looking at if they're stable and if they're defensive.
I'm also looking at how much they can grow their intrinsic
value on a per share basis year after year.
Meaning I'm searching for companies that on a per share
basis are going to have higher free cash flows, earnings and
revenue. They're going to have revenue
per share, free cash flow per share, earnings per share, all
of that's going to go up. The way that I measure that
using qualtrum.com here is we can look at the free cash flow.
This is going up, but then I also want to look at the free
cash flow per share. I can look at that right here.
The free cash flow per share is going up over time.
That's a trend I like to see. But the rate that it's
increasing is not as high as I would like.
Over the past decade, it's only increased 2.35% annualized.
So over a compound annual growth rate, 2.35% is not even
inflation. So Coca-Cola is basically just
staying stagnant with its free cash flow per share.
For me that's not good enough. I want companies that are
growing that free cash flow per share 10% or above for the next
10 years. And I believe I can find those
type of companies. We'll be looking at ones later
in this this episode. So I think Coca Cola's earnings
will be fine. In fact, I think they'll
probably beat their earnings estimates, but it's still not a
company that I find attractive to own right now.
Now Next up, we have a company Verizon, which is reporting
earnings Tuesday before market open.
Let's go ahead and take a look at this and for the sake of
time, all lump in AT&T as well for when they report earnings
because most of my comments are going to be very similar for
both of them. So we have Verizon here and I
think investors could save a lot of time if they simply just
didn't worry about Verizon or AT and TI see so many dividend
investors and investors online on Twitter voting which is a
better company, Verizon or AT&T. Is the yield good enough now to
buy in. Is this company finally at a
good place to buy? It's been on a down streak.
Are we buying the dip? I think it's it's just time
better spent moving on to different companies.
Don't worry about Verizon or AT&T.
Ignore them. Focus on better companies that
are going to create more value for your future.
These companies are value traps. I've been saying that for two
years straight repeatedly. Every time I comment on them, I
say their value traps. Even Warren Buffett gave up on
the company. He sold it at a low because he
knew it's a value trap. When you look at this one, it's
it's down all year again. It's creating no value for
shareholders 5 years straight. The company and the the
competitive dynamics are not good.
They're reliant on a lot of things they can't control.
And then the balance sheet of these companies is one of the
worst I've ever seen of any companies in the market.
Right now. Both of them have excess of $100
billion in long term debt, $100 billion in debt, and they have
no cash, only like 1 or $2 billion.
So if you took Google's balance sheet, flipped it upside down,
that's what this would look like.
Google has a ton of cash and no debt.
This company has a ton of debt and no cash.
It's literally the exact opposite of what I like to see.
The reason this is so problematic is when these
companies carry that amount of debt.
When they have interest rates go up.
Now the cost of capital is higher and their earnings go
down because they're paying a higher interest rate on their
newly renewed debt. These companies are not good
investments. They're not going to be good
investments if they drop another 5%.
So this is in the category of a strong avoid.
I would not invest in Verizon, I wouldn't invest in AT&T.
If you own them. You're buying value traps and
you're hoping you're hoping the future will magically look much
different than the past than what these companies have done
over the past 20 years. And I think the future is going
to look very similar to the past for Verizon and AT&T.
Now moving on from that, we have Spotify.
Spotify is a company that I'm very interested in.
This is one that I really, really love the product.
I've actually owned Spotify stock for a short time.
I think the company has tremendous amounts of potential.
There's a couple things that make me really resistant to
owning this company. One of them is that they're
competing with all of big tech. So you have Apple and Apple
Music. You have YouTube with YouTube
Premium and YouTube Music. You have Amazon and Amazon
Music, three big juggernauts, all competing with Spotify, and
there's other competitors outside of that.
It's also difficult because they don't own the rights to most of
the music that's streamed. It's the music studios.
So they're in a very difficult situation to have pricing power
since pricing power is one of the key things I look for, for
any holding Now it's just it doesn't fit in.
This company doesn't fit in because it lacks pricing power.
And I would say even more than pricing power, it's the fact
that when they do raise prices, they're not able to keep the
profits from raising prices. It goes to the music labels that
makes it very difficult. That's why you see this company
have continually it has EBITDA that's in the negative or barely
in the positive. They can't seem to make money
with any amount of users. And I think that's indicative in
and of itself. If a company has half a billion
users and can't generate meaningful amounts of profits,
then when are they going to, when are they finally going to,
when they get to 700 million, when they get to a billion
active users? Are you going to have to wait
another 15 years for them to finally make meaningful profits?
It's just too much of A waiting game.
I want companies that can show and prove today that they're
profitable and that they'll make even greater profits in the
future. So Spotify is one that I think
the earnings will be fine. If I had a guess, I think
they'll actually exceed their earnings.
They'll probably report decent growth.
I think that this is the type of product that people can afford
right now. People can't afford stuff that's
financed right now, like solar systems, cars, and homes.
But they can't afford things like Spotify that are a few
bucks a month. They can afford things like
Netflix. They can afford restaurants.
So I think Spotify is going to be fine this quarterly report,
but overall I'm still avoiding the company.
Now moving on, we get into the big earnings reports Tuesday
after market close. We have both Microsoft and
Google reporting earnings. These are going to be ones that
really dictate what direction the market goes.
The investors that are concerned about the market or investor
sentiment, they always look to big tech to save them.
What is big tech going to do? So let's go ahead and take a
look. Starting off with Microsoft.
Again, I'll mention that I own a lot of Microsoft stock in my
main portfolio. I've owned Microsoft since 2018.
I bought heavily into the company when it dipped down to
$220 per share. A lot of people said that was
crazy. 2/20 was the fair value and I wasn't buying it
undervalued. Here it is trading up to 330, a
full $100. We're up $10,700 in the green on
this portfolio. And then I also own even more
Microsoft in the story fund. I also own another $16,000 of
the company, $3800 in the green. On this one, Microsoft has been
one of the easier stock picks in my opinion.
The company is what I have called frequently the poster
child for the perfect fundamentals in a company.
I dare you to try to find a flaw with Microsoft's fundamentals.
Go ahead, take a look, we can look at the revenue growth.
It is flawless. It goes up over time on a very
consistent basis and ever since the CEO Satya Nadella came in
and made the company subscription based, cloud based,
the revenue growth accelerated. In the past ten years it's gone
up 11.73% per year. It's almost 12% per year at the
company this current size. That is remarkable and in my
opinion there's no reason it should slow down.
People say Microsoft's so big, how can it keep growing?
The world's very big and a lot of people need the tools that
Microsoft offers. They have a lot of pricing
power. So this revenue is going to
continue growing I think above what investors have seen before
with the company this size. We look at any of these
fundamentals. We can look at the EBITDA, it
follows right in line with the revenue, remarkable the growth
of the EBITDA. We look at the free cash flow,
again it follows right in line with the revenue growth.
So all of the financial metrics move in line with the top line
growth. You even have stock based comp.
A lot of companies have bigger trouble with this like Google
and Meta, not Microsoft. They have that under control.
In fact if we zoom in here, we can probably see this clear.
Now these blue bars right here are stock based comp, the orange
is the free cash flow. So we can see that even as they
grow their free cash flow, they're not diluting investors
that much. There are a little bit they're
paying some employees in stock based comp, which is fine.
You want your employees to be incentivized, but you can see
that Microsoft is doing this the right way.
They're growing their cash flows far and above what their stock
based comp is. That's a company that's actually
returning cash back to a shareholder.
If you want to see a company that doesn't do this, we can
look at Unity for example. This is the polar opposite.
If we look at the free cash flow against the stock based comp,
notice how the stock based comp is much higher than any free
cash flow, meaning this company's generating no cash for
the investor. But that's not the case with
Microsoft. Again, the the company has
perfect fundamentals. You look at the net income that
grows in line with the revenues. You look at the earnings per
share almost perfectly consistent growing in line.
You look at the cash and debt. They maintain more cash than
debt even after buying Activision Blizzard.
They're basically going to be balanced on their cash to debt
and I think they'll quickly start to build back a cash
balance. So in terms of Microsoft's
fundamental direction, in my opinion, nothing has gone worse
for Microsoft. There's no fundamental
deterioration. Everything looks as good or
better than it did three years ago or five years ago.
The company's in as strong of a position it's ever been because
of that. I'm not selling the company.
I sell companies when their fundamentals look like they're
worsening over time. But again, that's not the case
here. The price has gone up a bit, so
the valuation looks a little bit worse.
So I'm not actively buying the company right now.
If we look at the free cash flow yield and the PE ratio, we have
it at a free cash flow yield of 2.4%.
When we adjust out the stock based comp, that's a real free
cash flow yield of 2%. So that's pretty low, that's a a
pretty high valuation. the PE ratios at a 27 which is this is
middle of the road from Microsoft right now.
I don't consider Microsoft a still, but I also don't consider
it grossly overpriced. I don't think it's in bubble
territory. When it gets into the 35 to 40
PE ratio, that's where it's concerning and I'd probably
start trimming my holding, taking some gains, but we're not
at that point right now. I think we're at a Microsoft
that is around around intrinsic value, around it's fair value,
not grossly undervalued or overvalued.
So I don't expect to see anything incredible with
Microsoft's earnings in my opinion is going to be mostly in
line and I consider the company right now to simply be a hold.
Now moving on, we also have Google reporting earnings at the
same time. Now if we look at Google here in
My Portfolio, this is again one that I've been bullish on
repeatedly. It's a company that I've owned
for a long period of time. I'm in the green by $6300 in the
story funds. So this one's been a big winner.
It's now a $33,000 position. A lot of people say, Joseph,
you're critical of Google. You come out with videos
criticizing them. Therefore, you must be bearish
on the company or have something against it.
I'm not bearish on Google at all.
I don't own $33,000 worth of companies that I'm bearish on.
So Google's a company that I'm overwhelmingly positive on.
I really like the company. But being overwhelmingly bullish
on the company doesn't mean I have to like everything about
the stock. So let's go ahead and take a
look at what I think is good and bad about Google right now.
What I think is good about Google is the investment case is
very simple and straightforward. You're buying a high quality
company that has incredible diversified assets through
Google Search, Bard, and the AI portion of it.
They also have Android, so that's another big property.
They have YouTube and they have Google Cloud.
So you have 4 massive properties of which I think all of them are
incredibly good, but I think Google Cloud is underrated right
now and I think YouTube is an incredibly good property.
When I look at media analysis, YouTube's something that has no
competitor. I don't consider Twitch to be a
competitor to YouTube or Tiktok. To be YouTube stands alone.
So Google owns all of these incredible products.
These franchises that are all growing and I think
independently have very high intrinsic value that should go
up over time. It's also a simple investment
thesis because the company trades at a relatively
undemanding PE ratio and 18 Ford PE, which is basically in line
with the S&P 500 and it has a balance sheet that is like if
you took Verizon's balance sheet, you flip that upside
down. Here you have Google's Google
has a balance sheet right now that has $118 billion in cash
and $13 billion of long term debt, so around $100 billion of
excess cash. So they have enough cash to do
whatever they want, but in the meantime they can just earn
interest on this cash. So that's a very simple
investment thesis. It's a great company, has a
great balance sheet, good growth prospects and trades at a low
valuation. Now let's move on to some of the
downside, some of the things that I think investors spend a
little less time focusing on with Google.
The real valuation of Google is more expensive than what most
investors seem to believe and that is because of stock based
comp. For example, the free cash flow
yield before factoring in dilution through stock based
comp is 4.06%. When you look at that, you
think, wow, Google's really this company's really cheap.
But then we look at the free cash flow yield adjusted for
stock based comp, it's down to 2.85%.
All of a sudden it doesn't look nearly as good.
That's a 30% reduction in the amount of cash flow it's
producing. To illustrate this more clearly,
we can look at the free cash flow chart here again, you can
see all of this on qualtrum.com. And let me take a look at the,
we'll look at quarterly here. We'll bring up the free cash
flow. This is what it looks like over
time. Let's zoom into the past 10
years to make this more clear and then we'll look at the free
cash flow and stock based comp Boom.
There you have it. Every quarter the stock based
comp takes up roughly 30% of what they produce in free cash
flow. Now again with Microsoft, this
is more like 10 to 15%. It really wasn't that big, but
with Google it's 30%. That's a significant chunk of
the free cash flow being diluted away from the shareholder.
And don't be mistaken, stock based comp may not be cash, but
it dilutes away your ownership of the cash.
Since money is fungible, it's the exact same thing.
You're getting less of this cash because it's being diluted away.
Now, this isn't a bear case for Google.
I'm not arguing against the company, but I point this out
only to point out that the company is not as cheap as it
appears. Google's really trading at a
2.85% free cash flow yield, and that makes it a little bit more
fairly valued right now than what a lot of investors believe.
So that's a downside of Google. The company's not quite as cheap
as it first appears. Another thing that I think is a
concern for Google shareholders is because this company is so
big, so dominant, so powerful, makes so much money, and has
such great market share with Google search, it has a constant
target right on its back for every big government.
Every government, including the US, wants a piece of the Google
pie. The Justice Department sues
Google for monopolizing digital advertising technologies.
They want to break up the agreement that Google has with
being the default on every Apple device.
They want to, they want to break up Google, make it less
profitable, do everything they can to try to break down this
giant. We have other lawsuits always
happening through Europe all the time.
Google's getting fined for one thing or another and then we
even have news. Just today, Google faces new
antitrust probe in Japan. So they're being targeted for
being anti competitive in Japan as well.
And this is something that's going to be never ending.
Google is a monopolistic company.
It's going to be pushed around by the government because
they're really one of the only ones that can compete with
Google. So overall, even with the recent
rise in Google stock price, I still think the company's worth
owning. I certainly don't think it's
overvalued or a bad one to have in the portfolio.
And I have no reason to believe in this earnings report that
Google's will be disappointing. Maybe it will, maybe the ad
market overall slowed down, but I don't see that.
I still see a lot of consumer spending, a lot of digital
advertising. I think that Google Cloud is
going to be growing above schedule and I think that
YouTube might even re accelerate growth.
YouTube seems to be doing well recently.
So in terms of Google, it's another one that I feel very
good about going into this earnings report.
I look forward to it. Next up, we have Snapchat
reporting earnings after market close on Tuesday.
Let's go ahead and take a look at Snapchat.
What I'll say about this company is that it's one that has
returned no value over its lifetime to investors.
In fact, it's actively destroyed value while paying the employees
and especially the executives enormous amounts in stock based
comp. This right there, the $2 billion
that goes to the owner of the company.
So he's buying mansions right now while his shareholders
suffer and get nothing in return.
That's the relationship that happens with Snapchat.
Unfortunately, a lot of the public market works this way.
There's people that are taken advantage of.
I think that's what's happened in this case.
So Snapchat's not a company that I would own.
I don't think the product's that good.
I don't think they're in that great of a competitive shape.
This is one that has routinely dipped 1520% after earnings.
Sometimes it will spike up 10%. Either way, I don't think it's
worth owning, not one that I'm going to be interested in.
Now moving on from Snapchat, we have Visa and I'll lump in
MasterCard as well, which is reporting earnings on Thursday
into this discussion because I think they're virtually the
same. Both of them are a duopoly in
credit payments and I don't own any Visa, but I do own a bunch
of MasterCard. I chose MasterCard because it
has more significant market share gain over the past ten
years in Europe than Visa. MasterCard is executing.
They're out executing Visa in Europe and I like to see those
trends. But either way, I think both of
them are worth owning. These companies are in a class
of their own. They have some metrics that no
other company has none on a planet earth.
I really can't find any company that has such a consistently
high cash flow generation. We can look at some of the
metrics here. Let me focus in on one of them
here, the profit margins of the company.
Look at the profit margin in 2020, 244.6%.
Go on call, trim and search basically any other company
besides MasterCard and Visa and try to find one that has
consistently above a 35% profit margin that is near impossible
to find. From their revenue, their
revenue generation to their free cash flow, around half of
revenue is turned into free cash flow.
And then while they're able to accomplish that, you can see
that they have almost no dilution at the same time.
So they're converting all of their revenue into at least half
of it into free cash flow and then they're not diluting the
investor at all during that process.
And then what's even more incredible is they do buybacks
at the same time, making their free cash flow per share grow at
a ridiculous rate. With MasterCard, it's grown at
17% over the past five years. That's incredible.
This company really has some of the the best metrics I've ever
seen in a company. In the past decade, it's grown
at 17% free cash flow per share. So when I was looking at
Coca-Cola, I was saying that I wanted to find companies that
are growing that per share intrinsic value at a faster
rate. This is it.
This is a company growing per share intrinsic value at a
faster rate, growing per share value 17% per year and they
continue doing that in virtually any market.
That is incredible. So what I see here with Visa,
MasterCard are two companies that I never worry about the
upcoming earnings report. I would worry about something
fundamentally risking the business.
So some competitor like Apple Pay or or PayPal or something
and I don't see that in the horizon.
I don't consider crypto to be a credible threat at all.
I don't think the Apple Pay is a threat.
And these companies are still expanding.
They're still on the move. In fact, there's a recent Wall
Street Journal article that they are expanding into Africa and
they want to get a a little bit of that mobile payment money
from Africa and offer their services there as well.
And I think they will. They have such a good product
that I think the people in Africa will love using
MasterCard and Visa's brand recognition, their security,
their insurance, the same way that people in the US love it.
So these are companies that I really think their earnings
report is going to be fine. I could see Visa, MasterCard
both outperforming. I think that people are pulling
back on big ticket items, cars, solar panels, homes.
I don't think they're pulling back on small ticket items,
going out to eat, buying stuff on Amazon, paying for Spotify
and Netflix, all of that stuff they're doing through credit
cards and I think that's going to continue Now.
We're still on Tuesday after market close.
We also have Canadian Pacific and Vici's earnings release.
Let's go ahead and take a look at Canadian Pacificare.
This is one that I own in the portfolio.
It's been flat all year and it's a railroad company.
It's growing its free cash flow at a very fast speed.
We can see that over time growing revenue slowly and
steadily like railroads do. I think there's one thing that
is a pretty positive thing for Canadian Pacific and that is
that 2 super investors that I respect a lot, both have
significant stakes in this company.
One of them is Chris Hone, the other is Bill Ackman.
Now these investors, they don't talk with each other.
They're not sharing research amongst each other.
They both independently come to the same conclusion, that
Canadian Pacific is a high quality company that the merger
will have significant synergies. Canadian Pacific recently merged
with Kansas City Southern and they're saying that it's going
to increase their capacity for freight, their convenience for
customers, their pricing power and ultimately lead to per share
out performance, which of course is what we want.
And I think with this earnings report, we're going to see more
per share earnings growth at a very decent pace.
So as we see the company grow its earnings, we're going to see
the stock price catch up over time.
Now Vici's another company that's lesser known, but I
invest in it. It's a big holding of mine.
Vici's looked at as a little bit of a substitute for the 10 year
treasury. As a 10 year treasury goes up
and yield Vici goes down because the opportunity cost becomes
greater. But over time, I think Vici's
creating enough intrinsic value that it's going to grow either
way, no matter what direction the 10 year treasury goes.
I think Vici will ultimately, over the course of 10 years,
create a lot of value for shareholders.
So this is 1 where I am excited about the earnings report.
I expect another quarter of 100% rent collection.
And I think the company's latest acquisition with Bolero
Properties was a good one. And I'll have more on that
acquisition in a future episode. Now moving on, we get to
Wednesday where we have a couple big earnings reports.
One of them is Thermo Fisher Scientific.
This is one that I believe Terry Smith owns.
We also have Chris Hohn owning this one.
So a couple of the Super investors like this stock and I
think I can see the reasons why. It's a medical device company
that has products that need to be purchased by hospital and
medical staff no matter what the conditions are.
So they sell a product that is necessary at all times, which is
a good thing. The stock has been struggling
this year. So there's some investors that
may be looking at this as a good time to enter, but over time
it's a a good compounder company that's done terrific over the
past decade. Now, even though I avoid medical
companies for the most part, I do like TMOI think this one's a
decent one. What I'm concerned about with
these companies is always the chance of lawsuit.
They can really cripple a medical company.
So if you're selling a bunch of devices and then it turns out
that you presented something inaccurate or the device has
some flaw, this happens a lot of the times with pharmaceutical
companies. There's some tests that come out
that show that a a pill has a problem that wasn't previously
discovered and then the pharmaceutical companies on the
hook for it, they have to pay out billions of dollars because
of some big lawsuit. I think there's a chance of that
happening with TMO. But as long as things are smooth
sailing with it, I think this one's going to have fine
earnings. Now, a company that I am
invested in is Texas Roadhouse, This restaurant here also
reporting earnings on Wednesday. Right now, I think Texas
Roadhouse is at a decent valuation.
It has good growth prospects and I think the company's going to
have good earnings. I say that knowing that they're
supposed to be a recession and a slowdown in consumer spending.
But what I see are people that are still willing to spend on
small experiences. Going out to a restaurant,
paying $50.00 for the family to eat a bunch of steaks and have a
nice evening on a weekend is something that I think most
people are still willing to afford.
So I look at Texas Roadhouse's revenue growth.
I think it's going to be mostly in line, maybe a bit above.
I think they'll generate decent free cash flow this year and I
think their earnings will be good.
I could be wrong. I wouldn't bet on this.
I can't see the future. Maybe it will be a huge
disappointment. But what I see is a company that
most people can afford. They still offer a great value
proposition when I continue to not be concerned at all about
the future of this company. Now moving on, we get to
Wednesday after market close where we have the highly
anticipated meta earnings report.
Now before we jump into my analysis on meta, I have some
misinformation that I want to clear up about myself and some
trading that I've done. Some people on the Internet have
spread a rumour that I sold meta at rock bottom that Joseph sold
meta right at the bottom of the big dip.
Let's go ahead and take a look at the timeline here.
Meta over the past five years traded down dramatically, and at
one point it almost got to $80.00 per share right there at
the rock bottom. Now, during that time period,
the very rock bottom of meta, I came out with a video called The
Hard Truth About Meta, and that video was basically an essay
going over everything that Mark Zuckerberg did wrong over the
past year to crush the stock price, including him talking
incessantly about a metaverse, something that investors weren't
interested in at all. Now, a lot of people seem to
have assumed that since I released a video showing
everything that Meta was doing wrong that I must have sold the
stock right at that point, right at the low when I released the
video. The problem is, that's not
accurate at all. I didn't own meta when I
released the video. I had to own Meta for months
before releasing that video. In fact, I sold meta right here.
October 27th, 2021, I released a video called Warning to Facebook
Investors where I went over how I was incredibly nervous about
Mark Zuckerberg's talk of the Metaverse.
I thought he was very disconnected with Wall Street.
The analyst seemed to hate everything he was saying and I
sold out of the stock right here at a profit.
The stock continued to sell off like crazy.
It went down like 50%. I bought a little bit back right
here and then immediately sold a week later and then it's sense
traded down to $80.00 per share. That's where I released this
video and it's traded back up to this point.
Meta today still does not trade at the price that I sold in
2021. Now again, this is a bit of
misinformation passed around and I consider that my fault for not
illustrating this clearly. Right now I don't own any meta.
I haven't owned the company for nearly two years so it's a stock
that I've just been outside of, but my overall trading history
with meta is positive. I made around $1500 on the stock
as a small position. So looking at the company going
forward, I'm actually very optimistic about Meta because I
think the ads market similar to Google, Microsoft and Amazon, I
think it's very strong. There's still people wanting to
buy small ticket items that are advertising based.
Meta has done a great job growing Instagram, growing all
of their properties. I don't think they're taking
really any market share from Twitter.
So I think that the meta threads has been a little bit of a
disappointment, but I believe the company has enough good core
products to push it forward. Where I get nervous with meta is
the valuation of the company's another one that's a little bit
deceiving. It looks right now like the
valuation is at a 3% free cash flow yield, but the stock based
comp is an incredible impact on this company.
See how the purple lines go up roughly half of the free cash
flow that's generated. That's not good.
That's not something that I want to see.
A lot of people have criticized this for Salesforce and I think
that meta deserves equal criticism.
Even after the year of efficiency from Mark Zuckerberg,
it still seems like the company's not all that
efficient. They are generating a lot of
free cash flow, but also a ton of stock based comp and it
doesn't seem like it's changing anytime soon.
The stock comp packages continue to rise.
I think Med is a fine bet, but personally I like Google more.
I like the properties that Google owns more.
I like their free cash flow and their stock based comp situation
more. I like their balance sheet a
little bit more. I just think Google's in a
better position overall. So that's my choice.
That's where the majority of my money goes.
But I don't blame anyone for owning meta.
Now moving on to Thursday before market open, we have MasterCard
and Tractor Supply Company. We've already gone over
MasterCard. So let's take a look at Tractor
Supply Company. This may be one that you're
unfamiliar with. I have not talked about this
company before and at first glance it sounds like a company.
If you're not familiar with Tractor Supply Company, this is
a retailer. So you go to retail location and
then they sell stuff mostly for rural areas, things like this,
boots, power generators, flashlights, a lot of tools feed
for chickens and and you know you have safes and outdoor stuff
here. You might have 4 Wheelers and
sheds, just lots of different stuff like that.
It's kind of a Home Depot but for more outdoorsy areas.
So that's what the company does. It's an outdoor style retailer
and I think it's an interesting one.
Now it does have good fundamentals growing overtime
like we've seen with a lot of these retailers and this all
seems really good. Where my concern comes in with
this company is that it will have the Dollar General effect.
If you haven't paid attention to what happened with Dollar
General, this is a company that I've covered before.
It seemed like it was doing incredibly well for a long
period of time. And then suddenly it went down
50 plus percent because it mismanaged its inventory.
It had margins go down, sales slowed, everything seemed to
collapse in a single year. So 50% of the gains gone in a
single year. And if I'm being honest with
myself, I did not see this coming with Dollar General.
It's not something that I ever saw coming.
I'm lucky that I didn't own the stock.
I've never owned Dollar General, but it makes me take a step back
and realize that with these small retailers, Tsco, the
Tractor Supply Company, Dollar General and all these other
smaller retailers, it's very difficult to see upcoming
threats to them. So even though I think this one
will continue to do well, there's lots of data supporting
that. It's what I don't know that
concerns me. I feel like there's hidden
threats with retailers with how competitive the industry is.
And unless they have some type of incredible Moat or something
that is outside of the retail business to keep people shopping
there, I think it's very difficult.
Right now, I only own 2 retailers.
One is Costco, which has that subscription model, and the
other is Amazon, which also has the subscription model.
So Tractor Supply Companies, one that I think is interesting, but
for the reason that it's a retailer and I don't know what I
don't know about the company, It's one that I'm going to be
avoiding. Now moving on, we get to the
final big company of the week, which is Amazon.
Amazon is the most significant bet in the story fund.
I have around 1/3 of the entire story fund in this company alone
with $53,800 as the current holding.
I'm around $4000 in the red. So just a hair in the red.
This one's been in the green, it's been in the red.
It's a more volatile stock like Netflix.
But I still believe in the long term intrinsic value drivers of
Amazon. Those long term intrinsic value
drivers are the retail business, especially the third party
retail business where they have sellers selling on their
platform. They charge fees along the way.
Those fees are very high margin and that's a nice high margin
business for Amazon. You also have the Amazon Prime
subscription that's like the Costco model.
That's of course very high margin.
There's not much to maintain a Prime subscription.
Then of course you have the AWS business that is another large
portion of Amazon's intrinsic value driver.
I only see that growing overtime.
From a developer perspective, Amazon has an incredible
offering with AWS, basically everything you need to build
your company. And then of course they have the
ads business that they layer upon the retail business.
So with owning Twitch and owning all of the retail shopping, I
believe that Amazon has the best ads business of any big tech
company. It's better than Google's.
It's better than Netflix. It's better than Microsoft's,
better than Apple's. How targeted their ads are are
incredible. So we know that Amazon has these
great core intrinsic value drivers of the ad business.
Prime, AWS and the third party sales, all of those are core
intrinsic value drivers. They're growing every single
year. But this has been masked by the
amount of CapEx the company has done.
If we go to the expenses and we look at the CapEx, it is really
incredible how much they've done.
This is on a quarterly basis. Now take a look at what's
happening here. The CapEx is actually going
down. This was the investment cycle
right there from Amazon. They doubled their fulfilment
network in a single year. That caused an enormous amount
of lagging CapEx to pay for all of their new vans, to pay for
all their warehouses and tooling and equipment for every
warehouse. That's super expensive.
But now they've done it, they paid for most of it and we're
seeing the CapEx go down every single quarter.
Jassy, the CEO has said that he's getting costs under
control, that he can make the company profitable.
He's been tasked with that as the executive and investors are
very unnerved by this. They're very concerned about
Jassy and his ability to do this.
But Jassy has been with the company almost as long as Jeff
Bezos. Jassy has made AWS what it is
today, which is the Holy Grail of Amazon.
So a lot of people are are doubting the CEO that's tasked
with making this company profitable, getting CapEx and
cost under control. And I don't doubt him, I think
he's going to be able to do it. What I believe we're going to
see over the next couple of years with Amazon is explosive
free cash flow growth through a combination of all their
intrinsic value components of the business, the Prime
membership, the third party sales, the ADS business and AWS
all growing and the combination of a reduction in CapEx expense.
I think we're going to continue to see the CapEx go down
proportionate to revenue, which will cause a lot of a lot of
free cash flow growth, a lot of operating leverage in the
business. So right now, things look a
little messy with Amazon. Investors want more clarity.
They want it to look more like Microsoft or Google, but
Amazon's a business that has far more operating leverage.
It's a little bit more difficult to read and I think that it has
more chance for our performance because it's so difficult to
gauge. But my bet is, and again, I
could be wrong, this is my bet. I think Amazon's going to have
incredibly explosive free cash flow over the next couple of
years and I believe it could start this year.
We already had last quarter be a great quarter, way above
expectations. The quarter before that they
generated $12 billion in free cash flow.
And going into the holiday season, I think they're going to
have a very good results. We saw more recently that even
as the economy slows down and we're hearing all of these
people predict recessions that Amazon's Prime Day was the
biggest Prime Day launch ever in the company's history.
So Amazon's telling you a different story in terms of
their company than what a lot of analysts and a lot of economists
are trying to tell you. And I believe Amazon more than
The Economist. So I think this earnings report
is going to be really good. I look forward to it.
I'd be surprised if it was super underwhelming.
There's always a chance it will be underwhelming and that will
be a bummer, but I think it will be good.
Now, last but not least, we have Chipotle.
This is another company that I hold on My Portfolio now in
terms of Chipotle. I'm going to make the same
prediction I've made for the better part of two years.
I think companies like Chipotle, Starbucks, Texas Roadhouse,
McDonald's. I think that these companies
have done really well for the past two years and I think
they're going to continue to do really well.
I think people are addicted. They can't give up the
convenience and the ease of getting a tasty meal that takes
2 minutes to get. They don't want to spend the
time cooking at home and collecting all the ingredients
from grocery stores, which in many cases is equally as
expensive. So a lot of times they're going
to favor the convenience of something like Chipotle.
So I think that even though these companies have done really
well, I think they're going to continue to do really well.
And again, Chipotle's 8 dollars, $10 a meal.
You go to McDonald's, you pay 5 or 6 bucks a meal.
You go to Texas Roadhouse, you pay 12 to $15 a meal.
These are small ticket items. I believe right now the type of
things that are going to get hurt are what Steve Eisman
points out, cars, mortgages, things that require financing
and interacting with a bank. I think customers will continue
to go to Chipotle. So when I look at these upcoming
earnings, I'm not concerned about Chipotle.
I think it will be fine. I'd be far more concerned with
the upcoming earnings of Ford that's reporting on the same
day. So that's a look at the full
week ahead. I hope you enjoyed this
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