1 00:00:00,040 --> 00:00:02,280 Welcome back everyone today on the Joseph Carlson Show. 2 00:00:02,280 --> 00:00:04,800 I'm excited to jump into this episode because we're going to 3 00:00:04,800 --> 00:00:07,640 be covering the upcoming earnings this week. 4 00:00:07,840 --> 00:00:10,320 We have a lot of companies that you'll recognize, ones that are 5 00:00:10,320 --> 00:00:13,360 in My Portfolio, ones that you are likely invested in. 6 00:00:13,560 --> 00:00:16,960 Giving an update this week because after all its earnings 7 00:00:16,960 --> 00:00:20,440 season, it has begun. It begun last week with Netflix 8 00:00:20,440 --> 00:00:23,640 reporting their earnings and we got to see how that turned out. 9 00:00:23,840 --> 00:00:26,880 Netflix did a lot of good things, a lot of good things in 10 00:00:26,880 --> 00:00:29,560 their earnings report. The stock is now up to seven, 11 00:00:29,560 --> 00:00:36,160 77170 dollars, up 10 to 11% after earnings and another 12 00:00:36,160 --> 00:00:38,880 almost 1% today. While the rest of the market is 13 00:00:38,880 --> 00:00:41,480 down. Netflix just crushed it and it's 14 00:00:41,480 --> 00:00:44,760 still crushing it. It's up 65% year to date. 15 00:00:45,200 --> 00:00:48,560 If it keeps going, it's going to be a double in 2024. 16 00:00:48,960 --> 00:00:52,040 And Netflix, of course, is my largest position now. 17 00:00:52,040 --> 00:00:55,640 It's actually surpassed Amazon become my largest position in 18 00:00:55,640 --> 00:01:00,680 the story fund, an $80,000 holding with $34,000 in gains. 19 00:01:01,080 --> 00:01:03,200 I am incredibly bullish on this company. 20 00:01:03,200 --> 00:01:04,800 I have been for a long period of time. 21 00:01:05,239 --> 00:01:07,920 And of course, I'll be doing a full analysis of Netflix's 22 00:01:07,920 --> 00:01:10,080 earnings tomorrow. So if you want to see a little 23 00:01:10,080 --> 00:01:12,360 bit more about Netflix, my expectations for the company 24 00:01:12,360 --> 00:01:14,800 over the next couple of years, just make sure to subscribe to 25 00:01:14,800 --> 00:01:17,480 the channel and I'll have more content on that tomorrow. 26 00:01:17,840 --> 00:01:20,480 But for today, we're going to be focusing on this week. 27 00:01:20,720 --> 00:01:23,840 The company's reporting earnings this week, there are a few of 28 00:01:23,840 --> 00:01:25,840 them that are very important. Here's the list of the most 29 00:01:25,840 --> 00:01:28,360 popular companies reporting earnings this week. 30 00:01:28,720 --> 00:01:32,040 On Monday, like usual, I don't see any that I think are all 31 00:01:32,040 --> 00:01:33,960 that interesting. It's a lot of financial 32 00:01:33,960 --> 00:01:37,080 companies and banks that I don't do much with, but we get into 33 00:01:37,080 --> 00:01:39,080 the most exciting one starting on Tuesday. 34 00:01:39,400 --> 00:01:43,120 Tuesday before market open, we have Moody's reporting earnings. 35 00:01:43,520 --> 00:01:47,160 Moody's is a very wide MO company, a dominant duopoly 36 00:01:47,160 --> 00:01:51,240 company with S&P Global. Both Moody's and S&P Global are 37 00:01:51,240 --> 00:01:53,000 reporting their earnings this week. 38 00:01:53,200 --> 00:01:55,960 Moody's is market open before Tuesday. 39 00:01:55,960 --> 00:01:58,480 S&P Global is market open before Thursday. 40 00:01:58,840 --> 00:02:01,360 I'll be covering both of these companies as they're both credit 41 00:02:01,360 --> 00:02:04,080 rating agencies. They're both data and analytic 42 00:02:04,080 --> 00:02:05,440 companies. They have quite a bit of 43 00:02:05,440 --> 00:02:09,199 crossover and I'll be going over the expectations I have as both 44 00:02:09,199 --> 00:02:11,680 of these companies are two of my largest positions. 45 00:02:12,200 --> 00:02:14,760 Now we also get into a very busy day on Wednesday. 46 00:02:15,080 --> 00:02:18,400 Wednesday before market open, we have Coca-Cola, so that's a big 47 00:02:18,400 --> 00:02:20,800 one to jump into. I'll be sharing some thoughts on 48 00:02:20,800 --> 00:02:24,080 another Warren Buffett holding. And then Wednesday after market 49 00:02:24,080 --> 00:02:27,520 close, we get the most exciting earnings of the week, the number 50 00:02:27,520 --> 00:02:30,440 one being Tesla. Tesla has been through a slump. 51 00:02:30,480 --> 00:02:33,320 The company has been flat for nearly five years. 52 00:02:33,600 --> 00:02:36,480 If we look back five years, it's up a lot, but that includes the 53 00:02:36,480 --> 00:02:39,680 gains that were made in 20/20/2019. 54 00:02:40,040 --> 00:02:43,320 Everyday the five year return for Tesla is getting lower and 55 00:02:43,320 --> 00:02:46,800 lower As for the past four years it's been completely flat. 56 00:02:46,880 --> 00:02:49,640 Earning no money for roughly 4 years is a long period of time. 57 00:02:49,880 --> 00:02:52,840 And it seems like every earnings report is another opportunity, 58 00:02:52,840 --> 00:02:56,320 another time where Tesla investors are told to be patient 59 00:02:56,600 --> 00:02:58,160 because there's something around the corner. 60 00:02:58,600 --> 00:03:02,360 Is that something finally here? Is Tesla going to allow us with 61 00:03:02,360 --> 00:03:04,560 these earnings we'll be discussing in this episode. 62 00:03:04,640 --> 00:03:06,600 Now of course, we have some other big names here. 63 00:03:06,600 --> 00:03:10,080 We have ServiceNow, this is a fast growing SAS company that 64 00:03:10,080 --> 00:03:12,800 automates a lot of processes. We have Canadian Pacific, a 65 00:03:12,800 --> 00:03:15,600 Class 1 railroad that's one of the holdings in My Portfolio. 66 00:03:15,600 --> 00:03:18,440 We'll be looking at that one. And then of course, Thursday 67 00:03:18,440 --> 00:03:21,320 after market closed, we have another company that's moved up 68 00:03:21,320 --> 00:03:23,920 the rings. Texas Roadhouse has matured 69 00:03:23,920 --> 00:03:26,400 quite a bit since I started with this company. 70 00:03:26,680 --> 00:03:29,200 I bought it at around a $4 billion market cap. 71 00:03:29,320 --> 00:03:33,120 Now, Texas Roadhouse has become one of the biggest winners in My 72 00:03:33,120 --> 00:03:37,680 Portfolio with $44,000 in gains. This is a massive position 73 00:03:37,920 --> 00:03:39,960 that's mostly made-up of gains at this point. 74 00:03:40,280 --> 00:03:44,160 On top of paying a big dividend, Texas Roadhouse has just been on 75 00:03:44,160 --> 00:03:46,360 fire. This company's doing so well, 76 00:03:46,600 --> 00:03:50,680 it's another one that's up plus 50% year to date, beating out 77 00:03:50,680 --> 00:03:54,360 the vast majority of companies in the Q and the S&P 500. 78 00:03:54,680 --> 00:03:56,360 And this doesn't include dividends. 79 00:03:56,360 --> 00:03:59,000 This is another big dividend payer that's been raising its 80 00:03:59,000 --> 00:04:01,520 dividend over time. Can they keep it up? 81 00:04:01,920 --> 00:04:04,320 Well, there is some hesitancy around this one. 82 00:04:04,400 --> 00:04:07,600 In fact, I came across a recent analysis that was a bit bearish 83 00:04:07,600 --> 00:04:10,240 on Texas Roadhouse. It's by Yuval Rodem of Seeking 84 00:04:10,240 --> 00:04:14,480 Alpha, and he says that he's expecting a miss in revenue this 85 00:04:14,480 --> 00:04:16,040 quarter. So we'll be going over that 86 00:04:16,040 --> 00:04:18,800 research, looking at why he thinks Texas Roadhouse will miss 87 00:04:18,800 --> 00:04:21,120 their revenue this quarter and seeing if I agree. 88 00:04:21,200 --> 00:04:23,400 So we have a lot to dive into, a lot to cover. 89 00:04:23,400 --> 00:04:25,880 Let's go ahead and jump in Now. Starting off, I'm going to skip 90 00:04:25,880 --> 00:04:27,600 Monday. Once again, there's not many 91 00:04:27,600 --> 00:04:29,280 companies there that I find interesting. 92 00:04:29,520 --> 00:04:32,320 But when we get into tomorrow morning, we have Moody's 93 00:04:32,320 --> 00:04:35,120 reporting their earnings. Now, if you're not familiar with 94 00:04:35,120 --> 00:04:37,040 Moody's, it's a credit rating agency. 95 00:04:37,040 --> 00:04:39,720 They're one of the businesses that rate the huge majority of 96 00:04:39,720 --> 00:04:43,120 debt issued within the US. In fact, Moody's and S&P Global 97 00:04:43,120 --> 00:04:48,120 combined, they rate a combined 90% plus of all debt that's 98 00:04:48,120 --> 00:04:51,840 issued across the globe. That is just massive. 99 00:04:52,080 --> 00:04:55,120 The debt markets are multiples bigger than the equity markets. 100 00:04:55,360 --> 00:04:58,200 So they are rating an enormous amount of debt and they're like 101 00:04:58,200 --> 00:05:00,080 a toll booth. Whenever they rate debt, they 102 00:05:00,080 --> 00:05:02,720 charge for it. The companies that pay to have 103 00:05:02,720 --> 00:05:05,400 their debt rated get a lower interest rate on their debt. 104 00:05:05,600 --> 00:05:07,640 That's why they pay Moody's and S&P Global. 105 00:05:07,920 --> 00:05:10,920 So they have a very good globally dominant position and 106 00:05:10,920 --> 00:05:13,760 both of these companies offer similar services. 107 00:05:14,160 --> 00:05:17,360 So instead of going over these separately Tuesday and Thursday, 108 00:05:17,360 --> 00:05:19,560 I'm going to be covering both of these at once. 109 00:05:19,680 --> 00:05:22,240 Moody's earnings growth trajectory has increased over 110 00:05:22,240 --> 00:05:25,560 the past year as a company has ramped up its earnings per share 111 00:05:25,560 --> 00:05:27,520 growth. The reason that these companies 112 00:05:27,520 --> 00:05:30,520 are ramping up their earnings per share growth is precisely 113 00:05:30,520 --> 00:05:33,360 because of the ratings business. We can see that over the past 114 00:05:33,360 --> 00:05:36,240 year, in fact, if we zoom in a little bit here, over the past 115 00:05:36,240 --> 00:05:39,320 year or so, Moody's has been growing in revenue a lot, 116 00:05:39,320 --> 00:05:42,800 growing near 20%. But why is it instead of 117 00:05:42,800 --> 00:05:45,000 declining, it's now ramping back up? 118 00:05:45,360 --> 00:05:48,520 When we look at the KPIs, the key performance indicators, we 119 00:05:48,520 --> 00:05:51,600 can see precisely why Moody's business is roughly broken up 120 00:05:51,600 --> 00:05:54,080 into two halves. Both of these businesses 121 00:05:54,080 --> 00:05:56,680 underneath the Moody's names are wonderful businesses. 122 00:05:56,920 --> 00:06:00,440 One of them is Moody's Investor Services, that is the credit 123 00:06:00,520 --> 00:06:03,000 rating business. So if you see Moody's Investor 124 00:06:03,000 --> 00:06:06,040 Services, you think credit rating, what they're doing there 125 00:06:06,040 --> 00:06:08,240 is they're doing analysis on the credibility of different 126 00:06:08,240 --> 00:06:11,160 companies and companies pay to have them rated. 127 00:06:11,440 --> 00:06:14,160 That's all the business is. And again, you can dive into 128 00:06:14,160 --> 00:06:16,240 this one, but it has immense pricing power. 129 00:06:16,480 --> 00:06:19,760 It's very sticky. It's a super wide mode globally 130 00:06:19,760 --> 00:06:22,320 dominant business that they share with S&P Global. 131 00:06:22,640 --> 00:06:25,440 The other half is Moody's Analytics where they take a lot 132 00:06:25,440 --> 00:06:28,800 of their learnings and the data, a good portion of it, and they 133 00:06:28,800 --> 00:06:32,080 package it into a subscription and they sell that data to 134 00:06:32,080 --> 00:06:34,440 different companies. Then they also have different 135 00:06:34,440 --> 00:06:37,840 things that they sell. If we break up Moody's Analytics 136 00:06:37,840 --> 00:06:40,080 actually have another KPI that even breaks this down into 137 00:06:40,080 --> 00:06:42,480 greater detail. They have decisions and 138 00:06:42,480 --> 00:06:44,840 solutions, research and insights. 139 00:06:44,840 --> 00:06:47,520 They have in depth data. Again, we're in an age of 140 00:06:47,520 --> 00:06:51,040 information, so they offer a lot of that as subscriptions, data 141 00:06:51,040 --> 00:06:53,400 and information. So it's a little bit vague, but 142 00:06:53,400 --> 00:06:56,600 you can also just Google these to learn about them, each one of 143 00:06:56,600 --> 00:06:58,480 them. They have different packages and 144 00:06:58,480 --> 00:07:01,640 services that they sell that many companies find very 145 00:07:01,640 --> 00:07:03,160 valuable. It gives them an edge. 146 00:07:03,520 --> 00:07:06,760 So this is the Moody's Analytics portion of the company. 147 00:07:07,400 --> 00:07:10,320 When we look at why Moody's is all of a sudden growing over the 148 00:07:10,320 --> 00:07:13,040 past year, it's not Moody's Analytics. 149 00:07:13,200 --> 00:07:17,120 The above average growth is from the Moody's Investor Services, 150 00:07:17,440 --> 00:07:20,000 and that is because more companies are starting to issue 151 00:07:20,000 --> 00:07:22,360 debt once again. We all remember what happened in 152 00:07:22,360 --> 00:07:25,320 2021 and 2022. The market fell as the Fed 153 00:07:25,320 --> 00:07:27,720 raised interest rates. They're raising interest rates 154 00:07:27,720 --> 00:07:30,560 to combat inflation. As interest rates went up, 155 00:07:30,640 --> 00:07:32,720 companies held back on issuing new debt. 156 00:07:33,040 --> 00:07:35,560 They didn't want to issue debt at a higher interest rate, which 157 00:07:35,560 --> 00:07:37,800 makes sense. But now that a couple years have 158 00:07:37,800 --> 00:07:40,440 passed, companies simply have to issue more debt. 159 00:07:40,760 --> 00:07:43,520 They have to because they have to renew debt and they have debt 160 00:07:43,520 --> 00:07:46,680 that they can't pay off. So companies are now once again 161 00:07:46,880 --> 00:07:50,440 starting to issue more debt. As they issue more debt, they 162 00:07:50,440 --> 00:07:53,240 need that debt rated. And here you have Moody's and 163 00:07:53,240 --> 00:07:55,320 S&P Global here to rate that debt. 164 00:07:55,600 --> 00:07:58,520 And that's why it's skyrocketing up, especially in the past two 165 00:07:58,520 --> 00:08:01,000 quarters. If we compare this again to S&P 166 00:08:01,000 --> 00:08:03,680 Global, you'll see something very similar. 167 00:08:03,680 --> 00:08:06,400 S&P Global again has the different revenue segments. 168 00:08:06,720 --> 00:08:09,360 They have a little bit more diverse of a business, but one 169 00:08:09,360 --> 00:08:11,880 of them is ratings. When we look at just the ratings 170 00:08:11,880 --> 00:08:13,600 business, it makes this very clear. 171 00:08:13,720 --> 00:08:18,320 It went down in 2021 and it started to renew growth in 2022 172 00:08:18,320 --> 00:08:20,480 as more and more companies are issuing debt. 173 00:08:20,520 --> 00:08:23,360 When I invest in companies like this, I'm looking for long term 174 00:08:23,360 --> 00:08:26,560 secular trends, things that will continue for a long foreseeable 175 00:08:26,560 --> 00:08:28,560 amount of time. And one of the things that I 176 00:08:28,560 --> 00:08:31,160 consider with both of these companies, Moody's and S&P 177 00:08:31,160 --> 00:08:33,720 Global, is that companies are going to issue debt and they're 178 00:08:33,720 --> 00:08:36,000 going to issue more and more of it on a global scale. 179 00:08:36,039 --> 00:08:38,360 As economies and countries continue to print more cash, 180 00:08:38,360 --> 00:08:41,360 causing more inflation, these companies will continue to rate 181 00:08:41,360 --> 00:08:43,720 more debt. This is why I have both of these 182 00:08:43,720 --> 00:08:46,720 companies as a sizable holding in My Portfolio. 183 00:08:47,000 --> 00:08:51,400 If we look at them here, S&P Global is a $108,000 position, 184 00:08:51,840 --> 00:08:55,480 $33,000 in the green. Moodys is a $50,000 position, 185 00:08:55,680 --> 00:08:58,240 $10,000 in the green. Both of these companies have 186 00:08:58,240 --> 00:09:00,600 done really well given the time period that I've invested in 187 00:09:00,600 --> 00:09:01,960 them. Right now, given the growth 188 00:09:01,960 --> 00:09:05,080 profile of these companies, the tailwinds ahead and the fact 189 00:09:05,080 --> 00:09:06,760 that these companies are both trading at a reasonable 190 00:09:06,760 --> 00:09:09,800 valuation, I'm not too concerned about the earnings going into 191 00:09:09,800 --> 00:09:12,400 this week. Now moving on, we get into 192 00:09:12,400 --> 00:09:15,120 Wednesday before market open and we have Coca-Cola. 193 00:09:15,240 --> 00:09:17,600 Coca-Cola is actually doing surprisingly well. 194 00:09:17,600 --> 00:09:20,720 If we look at the performance this year, it's up 17%. 195 00:09:21,080 --> 00:09:23,600 And their last quarter, they actually crushed earnings. 196 00:09:23,600 --> 00:09:26,920 They raised guidance, they had higher volumes, they raised 197 00:09:26,920 --> 00:09:29,920 their projections. Their increase in sales in the 198 00:09:29,920 --> 00:09:33,840 US was something like 20% or it was 10% in the US. 199 00:09:33,840 --> 00:09:37,000 It was 20% in Mexico. They're growing sales across the 200 00:09:37,000 --> 00:09:39,440 world and somehow they continue to do this. 201 00:09:39,440 --> 00:09:41,240 Coca-Cola is one of these companies that by its 202 00:09:41,240 --> 00:09:42,920 characteristics, it looks really good. 203 00:09:42,920 --> 00:09:45,360 It's a Warren Buffett holding. He sold it for a very long 204 00:09:45,360 --> 00:09:47,800 period of time. It's a $300 billion market cap 205 00:09:47,800 --> 00:09:49,800 company that generates very steady revenues. 206 00:09:50,200 --> 00:09:53,080 They got rid of their bottling. So they're just a very 207 00:09:53,080 --> 00:09:56,480 efficient, capital efficient company with very low CapEx 208 00:09:56,480 --> 00:09:58,680 investment. They're basically a licensed 209 00:09:58,680 --> 00:10:02,160 company that sells ingredients like syrup. 210 00:10:02,400 --> 00:10:04,800 They have their Coca-Cola freestyle machines, which are 211 00:10:05,120 --> 00:10:07,040 they're just amazing. Those freestyle machines are 212 00:10:07,040 --> 00:10:09,520 awesome. So Coca-Cola is a great company 213 00:10:09,800 --> 00:10:12,960 by all the characteristics, but every time I look at this one, I 214 00:10:12,960 --> 00:10:16,800 come to the same conclusion and I, I again, I could be off 215 00:10:16,800 --> 00:10:19,480 saying this about Coca-Cola. So this is something that maybe, 216 00:10:19,760 --> 00:10:23,400 maybe it will be clipped like in 10 years later show how wrong I 217 00:10:23,400 --> 00:10:24,920 was. I hope that's the case. 218 00:10:25,640 --> 00:10:29,160 But I just can't get over how many companies are going in to 219 00:10:29,160 --> 00:10:34,000 soft drinks and energy drinks and sugar drinks and milk based 220 00:10:34,000 --> 00:10:36,160 drinks at all these drink companies. 221 00:10:36,440 --> 00:10:39,680 The competition. The competition and drinks is so 222 00:10:39,680 --> 00:10:41,920 fierce. I've never seen anything like 223 00:10:41,920 --> 00:10:43,760 it. Drink competition is one of the 224 00:10:43,760 --> 00:10:46,040 most fiercely competitive spaces I've ever seen. 225 00:10:46,520 --> 00:10:51,400 You have companies like Rockstar with Pepsi, you have Celsius, 226 00:10:51,400 --> 00:10:55,320 you have Red Bull, you have Monster Energy, you have Bang. 227 00:10:55,800 --> 00:10:58,520 The energy drinks themselves, they're just endless. 228 00:10:58,520 --> 00:11:01,000 I can name off 20 different energy drinks that I see in the 229 00:11:01,000 --> 00:11:03,080 store. On top of that, we have other 230 00:11:03,080 --> 00:11:05,600 companies like Starbucks that are making big changes, that 231 00:11:05,600 --> 00:11:09,240 have new leadership that are centered around drinks and many 232 00:11:09,240 --> 00:11:12,120 of them having a lot of caffeine that in one way or another 233 00:11:12,520 --> 00:11:14,480 people can only have so many drinks during the day. 234 00:11:14,840 --> 00:11:17,560 We have only so many options. People talk about there being a 235 00:11:17,560 --> 00:11:20,800 lot of competition in different industries and what I see with 236 00:11:20,800 --> 00:11:24,840 Coca-Cola and the entire soft drink, energy drink, entire 237 00:11:24,920 --> 00:11:28,560 drink business as it seems very competitive today. 238 00:11:28,840 --> 00:11:31,960 Now, Coca-Cola is unique that it's so big, it has so much 239 00:11:31,960 --> 00:11:34,200 brand value, it has so much distribution. 240 00:11:34,480 --> 00:11:37,840 They have already such a massive network effects that I believe 241 00:11:37,840 --> 00:11:40,600 this company can withstand the intense pressure of increased 242 00:11:40,600 --> 00:11:42,800 competition. I still think they'll be able to 243 00:11:42,800 --> 00:11:44,720 grow. I still think these earnings 244 00:11:44,720 --> 00:11:47,200 will be good. People are paying for the extra 245 00:11:47,200 --> 00:11:48,840 soda. They're paying three and $4.00 246 00:11:48,840 --> 00:11:51,120 for it at restaurants. They're buying the in the 247 00:11:51,120 --> 00:11:53,520 freestyle machines. They're buying it in fast food 248 00:11:53,880 --> 00:11:55,640 siding. Coca-Cola will be fine. 249 00:11:56,200 --> 00:11:58,440 When I'm looking at different industries, I want to get into 250 00:11:58,440 --> 00:12:00,160 different companies I want to invest in. 251 00:12:00,520 --> 00:12:03,080 I like to invest in ones where there's more of a concentrated 252 00:12:03,080 --> 00:12:06,960 market share, where there's less intense competition, there's 253 00:12:06,960 --> 00:12:09,680 fewer competitors that are pouring billions of dollars into 254 00:12:09,680 --> 00:12:12,080 building their brand. We already saw what happened to 255 00:12:12,080 --> 00:12:14,320 Celsius. This is another up and coming 256 00:12:14,320 --> 00:12:17,040 brand. It's still just massive. 257 00:12:17,040 --> 00:12:19,520 We look at the revenue growth. We look at this on a trailing 258 00:12:19,520 --> 00:12:21,400 basis. Check out this revenue. 259 00:12:22,040 --> 00:12:25,280 It's it's explosive. It's faster than most tech 260 00:12:25,280 --> 00:12:29,000 companies, most SAS companies. It went from 88 million, $70 261 00:12:29,000 --> 00:12:33,320 million in a full year to now 1.5 billion. 262 00:12:33,400 --> 00:12:34,960 They seemingly came out of nowhere. 263 00:12:34,960 --> 00:12:37,920 They branded more towards women instead of Monster Energy 264 00:12:37,920 --> 00:12:40,560 branding towards men. They carved out another niche 265 00:12:40,800 --> 00:12:43,800 and now they're another big competitor competing with the 266 00:12:43,800 --> 00:12:47,400 likes of Coca-Cola. So for me, I believe Coca-Cola 267 00:12:47,400 --> 00:12:49,680 will be fine. This isn't a gloomy take on the 268 00:12:49,680 --> 00:12:50,800 company. I think they're going to 269 00:12:50,800 --> 00:12:53,520 continue to grow, pay their dividend, grow their earnings 270 00:12:53,520 --> 00:12:56,560 per share at a moderate rate. But I have to believe the level 271 00:12:56,560 --> 00:12:59,600 of increased competition, the amount of companies wanting to 272 00:12:59,600 --> 00:13:03,040 get you to drink their drink and get into the habit of consuming 273 00:13:03,040 --> 00:13:07,200 their product over Coca-Cola has to put pressure on the revenue 274 00:13:07,200 --> 00:13:08,920 growth and pricing power of this company. 275 00:13:08,960 --> 00:13:10,560 So we'll see what happens with Coca-Cola. 276 00:13:10,560 --> 00:13:12,200 I think they're going to be fine this quarter. 277 00:13:12,400 --> 00:13:15,120 But long term, I become increasingly concerned about 278 00:13:15,120 --> 00:13:18,840 this industry moving on. We get into Tesla the biggest 279 00:13:18,840 --> 00:13:22,200 earnings report of the week by far, reporting earnings after 280 00:13:22,200 --> 00:13:24,840 market close on Wednesday. Let me say that I'm concerned 281 00:13:24,840 --> 00:13:28,080 about Tesla investors over the next year or so, and here's why. 282 00:13:28,560 --> 00:13:31,840 Tesla stock is one that has been flat for roughly 4 years. 283 00:13:32,160 --> 00:13:35,320 When investors look at Tesla stock, a lot of them are looking 284 00:13:35,320 --> 00:13:38,600 at the past gains of the company, the massive CapEx 285 00:13:38,640 --> 00:13:42,280 investment cycle, the ramp up in production, the enormous growth 286 00:13:42,280 --> 00:13:45,920 that Tesla had in 2018-2019 and 2020. 287 00:13:46,440 --> 00:13:49,200 And we see that in the stock price over the past five years. 288 00:13:49,560 --> 00:13:53,200 On A5 year basis, Tesla's up 1200%. 289 00:13:53,640 --> 00:13:56,560 So massive gains. It looks just incredible. 290 00:13:57,320 --> 00:14:00,360 But when you look at this stock chart, you notice that virtually 291 00:14:00,360 --> 00:14:04,560 all the gains, in fact all of them are just from 2019 to 2020. 292 00:14:04,840 --> 00:14:07,760 That's where all this 1100% gain came from. 293 00:14:08,000 --> 00:14:13,120 The stock price went from $20 per share up to $283 per share. 294 00:14:13,680 --> 00:14:15,720 So there's your gain. It's all right here. 295 00:14:15,720 --> 00:14:20,680 In these two years since then, for the past four years, Tesla 296 00:14:20,680 --> 00:14:23,840 stock has been flat and down. The company has had a lot of 297 00:14:23,840 --> 00:14:27,440 volatility, and investors have enjoyed no gains while the 298 00:14:27,440 --> 00:14:31,000 market, in comparison, has raced up while many other companies 299 00:14:31,000 --> 00:14:35,040 are racing up every single day. And one of the concerns I have 300 00:14:35,120 --> 00:14:40,000 is what will happen if Tesla has no gains for just another year. 301 00:14:40,680 --> 00:14:43,640 If Tesla goes a full year without having more gains, the 302 00:14:43,640 --> 00:14:46,360 company will be flat for a five year basis. 303 00:14:46,880 --> 00:14:51,480 So if you race 2019 to 2020, if this is gone, if we've moved to 304 00:14:51,480 --> 00:14:55,080 the end of 2025 and Tesla's still treading water, it's still 305 00:14:55,080 --> 00:14:57,320 flat. You'll be able to go to the five 306 00:14:57,320 --> 00:15:01,560 year period and it will say 0 percent or even negative. 307 00:15:02,120 --> 00:15:04,200 That's going to be a toll. I think that's going to be a 308 00:15:04,200 --> 00:15:07,800 toll mentally and psychologically on Tesla 309 00:15:07,800 --> 00:15:11,000 investors. A full half a decade of no 310 00:15:11,000 --> 00:15:13,120 gains. What happens when people are 311 00:15:13,120 --> 00:15:15,160 reminded over and over again that you've been in the stock 312 00:15:15,160 --> 00:15:18,400 for half a decade and made no gains, while the market, by 313 00:15:18,400 --> 00:15:21,520 comparison, has gone up 100% or 150%? 314 00:15:21,800 --> 00:15:23,680 People are earning money in different companies. 315 00:15:24,160 --> 00:15:26,440 That could cause a lot of people to sell out of the stock, to 316 00:15:26,440 --> 00:15:30,360 become a little jaded on it, a little bit disappointed with the 317 00:15:30,360 --> 00:15:32,560 performance. When they get to that point, 318 00:15:32,560 --> 00:15:35,120 they might end up selling. Because when you get to a full 319 00:15:35,120 --> 00:15:38,560 half a decade with no gains or being in the red, investors may 320 00:15:38,560 --> 00:15:41,240 start to wonder why it deserves its high multiple. 321 00:15:41,520 --> 00:15:43,720 If it doesn't deserve the high multiple, that may cause more 322 00:15:43,720 --> 00:15:46,120 downward pressure. So part of the reason that I'm 323 00:15:46,120 --> 00:15:48,400 concerned about Tesla, especially over the next year, 324 00:15:48,920 --> 00:15:50,640 is just the psychology behind it. 325 00:15:51,080 --> 00:15:53,240 A longer stock goes without no gains. 326 00:15:53,240 --> 00:15:55,600 I think the harder it is to justify the high multiple. 327 00:15:55,880 --> 00:15:58,560 We see what happened with companies like Disney that once 328 00:15:58,560 --> 00:16:00,920 had these very bright futures. They're going to be a major 329 00:16:00,920 --> 00:16:02,920 streaming competitor. They're changing their business 330 00:16:02,920 --> 00:16:06,320 model and then things went South and over the past five years, 331 00:16:06,320 --> 00:16:08,520 it's in the red and this is what it looks like. 332 00:16:08,520 --> 00:16:11,680 This is what gets highlighted, and now nobody's excited for 333 00:16:11,680 --> 00:16:14,360 Disney. It's hard to get that magic back 334 00:16:14,400 --> 00:16:16,280 once you've lost it. The next thing that I'm 335 00:16:16,280 --> 00:16:19,240 concerned about with Tesla is another thing that I'm beating 336 00:16:19,240 --> 00:16:20,880 the drum on for a long period of time. 337 00:16:20,880 --> 00:16:23,800 In fact, the past four years, which is a valuation of the 338 00:16:23,800 --> 00:16:26,040 company. Valuation is a combination of 339 00:16:26,040 --> 00:16:28,760 the current multiple the company trades at combined with your 340 00:16:28,880 --> 00:16:30,520 projections of the future growth. 341 00:16:31,000 --> 00:16:34,120 But to inform the valuation, we can always look at the history 342 00:16:34,120 --> 00:16:37,200 of the company, where it stands right now and where it's current 343 00:16:37,200 --> 00:16:40,080 multiple is today. That helps us inform what's 344 00:16:40,080 --> 00:16:42,560 going to happen with the future of this company and what you 345 00:16:42,560 --> 00:16:45,520 have to assume to have happen for this company to be worth the 346 00:16:45,520 --> 00:16:49,120 current price. Tesla is a massive company by 347 00:16:49,120 --> 00:16:51,120 market cap. When we look at the market cap 348 00:16:51,120 --> 00:16:58,800 here, let me zoom in, it is $705 billion, $705 billion. 349 00:16:58,800 --> 00:17:01,200 So we're talking about a company that's three quarter of a 350 00:17:01,200 --> 00:17:04,119 trillion dollar market cap. So we have a very large company. 351 00:17:04,680 --> 00:17:08,319 The problem is they don't generate a lot of cash flow to 352 00:17:08,319 --> 00:17:11,040 justify that market cap. Today. 353 00:17:11,040 --> 00:17:14,079 When we look at the amount of cash flow that Tesla generates, 354 00:17:14,079 --> 00:17:16,240 we have it right here on a trailing 12 month basis. 355 00:17:16,520 --> 00:17:19,160 This is the most accurate way to view it with the current trends 356 00:17:19,520 --> 00:17:21,400 and what they've done over the trailing gear. 357 00:17:21,880 --> 00:17:23,560 We look at Tesla's massive ramp up. 358 00:17:23,760 --> 00:17:26,720 This is the reason why the company gained the market cap 359 00:17:26,720 --> 00:17:30,880 and gained in stock price so much from 2017 to 2020. 360 00:17:31,120 --> 00:17:33,960 We saw that in the charts, but those gains have already 361 00:17:33,960 --> 00:17:35,640 happened. The stock is already at that 362 00:17:35,640 --> 00:17:39,120 price and what we've seen for the past two years, we can see 363 00:17:39,120 --> 00:17:40,480 it right here. In fact, let's zoom in. 364 00:17:40,480 --> 00:17:44,680 Over just the past five years, we see free cash flows falling 365 00:17:45,160 --> 00:17:47,600 nearly every quarter. They go up and down on their 366 00:17:47,600 --> 00:17:50,760 steady downward trend. When we look at Tesla right now, 367 00:17:50,840 --> 00:17:54,280 over the past two years, they generated nearly $2 billion in 368 00:17:54,280 --> 00:17:58,640 free cash flow going back 12 months, so nearly 2 billion 369 00:17:58,640 --> 00:18:01,520 dollars 1.7. We can give them the benefit of 370 00:18:01,520 --> 00:18:05,080 the doubt and say they generated 2 billion dollars, $2 billion in 371 00:18:05,080 --> 00:18:09,600 free cash flow for company trading at a $700 billion market 372 00:18:09,600 --> 00:18:11,960 cap. Very, very expensive. 373 00:18:12,160 --> 00:18:14,400 When you look at it at the current multiples, you are 374 00:18:14,400 --> 00:18:17,960 implying enormous levels of growth to justify this current 375 00:18:17,960 --> 00:18:20,200 market cap. If we give a comparison here, 376 00:18:20,520 --> 00:18:22,560 I'll just compare it to a company that recently reported 377 00:18:22,920 --> 00:18:25,600 one of my holdings, one that I am bullish on, Netflix. 378 00:18:26,000 --> 00:18:28,880 Netflix is at less than half the market cap of Tesla. 379 00:18:29,240 --> 00:18:36,840 Netflix is at 327 billion, 327 * 2 is around 6660 and we have 380 00:18:36,840 --> 00:18:40,400 Tesla at 700. So even if we got Netflix and we 381 00:18:40,400 --> 00:18:44,000 somehow replicated this company, made a duplicate of it, it would 382 00:18:44,000 --> 00:18:46,800 still be cheaper to buy both those Netflix companies, 383 00:18:47,160 --> 00:18:50,080 doubling the the valuation of it than buying Tesla. 384 00:18:50,080 --> 00:18:51,840 Today. When we look at the free cash 385 00:18:51,840 --> 00:18:55,440 flow that Netflix generates, this is true undiluted free cash 386 00:18:55,440 --> 00:18:57,560 flow. In the past year, Netflix 387 00:18:57,560 --> 00:19:01,080 generated $7.2 billion in free cash flow. 388 00:19:01,160 --> 00:19:04,080 So to put this in perspective, Tesla investors are paying 389 00:19:04,360 --> 00:19:07,720 double the market cap of a Netflix like they're buying over 390 00:19:07,720 --> 00:19:10,840 2 Netflix companies. And as a result, what they're 391 00:19:10,840 --> 00:19:14,560 getting over the past 12 months is 1/3 of the free cash flow 392 00:19:14,560 --> 00:19:18,800 that one Netflix generates 1. Netflix generates $7 billion. 393 00:19:19,080 --> 00:19:22,840 If you were to double Netflix, it would generate $14 billion in 394 00:19:22,840 --> 00:19:25,320 free cash flow, which if we do the math, means that on the 395 00:19:25,320 --> 00:19:29,240 current free cash flow multiple Tesla is 7 times as expensive as 396 00:19:29,240 --> 00:19:33,280 Netflix 7 times. Now, you may say that Tesla and 397 00:19:33,280 --> 00:19:36,120 Netflix are different companies. Maybe Tesla has more growth 398 00:19:36,120 --> 00:19:38,040 opportunity ahead of it than Netflix. 399 00:19:38,320 --> 00:19:41,120 Maybe it has a greater total addressable market, right? 400 00:19:41,120 --> 00:19:43,280 Maybe their future investment profiles look different. 401 00:19:43,520 --> 00:19:45,760 What I I think it's true, there is an argument that Tesla could 402 00:19:45,760 --> 00:19:48,920 become a much bigger company potentially if some of these 403 00:19:49,120 --> 00:19:52,280 more grandiose visions work out. But even if we look at the 404 00:19:52,280 --> 00:19:55,240 current growth rates of the company, when we look at Tesla 405 00:19:55,240 --> 00:19:59,400 right now, the revenue growth has been flat around 5 quarters. 406 00:19:59,840 --> 00:20:04,840 It's grown 1.37% on a trailing 12 month basis over the past 407 00:20:05,200 --> 00:20:07,920 year. So Tesla also has very slow 408 00:20:07,920 --> 00:20:10,560 growth right now. The company's really not 409 00:20:10,560 --> 00:20:14,240 growing. Netflix, which again is 7 times 410 00:20:14,240 --> 00:20:18,120 cheaper on a free cash flow basis, just grew 15% in revenue. 411 00:20:18,520 --> 00:20:21,360 It was 20% on an FX neutral basis. 412 00:20:21,840 --> 00:20:25,200 So on growth rates, you're paying more for a company, much 413 00:20:25,200 --> 00:20:27,640 more for one that has flat revenue growth. 414 00:20:28,240 --> 00:20:30,680 And This is why I'm concerned about the valuation of the 415 00:20:30,680 --> 00:20:32,680 company. It's not to be hard on Tesla 416 00:20:32,680 --> 00:20:34,120 investors. I'm not trying to be 417 00:20:34,120 --> 00:20:37,000 discouraging here. It comes across that way. 418 00:20:37,120 --> 00:20:39,800 But I look at the numbers. I look at what's priced in 419 00:20:39,840 --> 00:20:41,560 today. I look at the reality of the 420 00:20:41,560 --> 00:20:45,280 situation and the discrepancy between the current fundamentals 421 00:20:45,280 --> 00:20:48,360 and the current cash flows and metrics and growth of this 422 00:20:48,360 --> 00:20:51,480 company. And I see a very large chasm of 423 00:20:51,480 --> 00:20:54,240 where this company is right now and where it needs to be to 424 00:20:54,240 --> 00:20:57,040 justify its valuation. Now, they may be able to bridge 425 00:20:57,040 --> 00:20:58,760 the gap. They may be able to to fill in 426 00:20:58,760 --> 00:21:02,280 that valuation with incredible explosive growth like they've 427 00:21:02,280 --> 00:21:04,920 done in the past, but it's difficult to pull that off. 428 00:21:05,320 --> 00:21:08,200 Elon did it once. He grew the company from 2017 to 429 00:21:08,200 --> 00:21:11,960 2020, but it's going to be very difficult to justify a $700 430 00:21:11,960 --> 00:21:15,280 billion market cap today. This is why I believe many Tesla 431 00:21:15,280 --> 00:21:18,440 investors are looking to the future and these more grandiose 432 00:21:18,440 --> 00:21:20,960 visions of the future. Robotaxi. 433 00:21:21,120 --> 00:21:24,560 Tesla taking over Waymo taking over Uber, growing their 434 00:21:24,560 --> 00:21:27,120 robotaxi. With the new Tesla event from 435 00:21:27,120 --> 00:21:29,240 Elon, you have the Tesla Optimus spot. 436 00:21:29,280 --> 00:21:31,880 The Tesla Optimus spot was demoed during this latest event 437 00:21:31,880 --> 00:21:33,480 as well. They marched out. 438 00:21:34,000 --> 00:21:37,280 They were partially controlled by AI, which is what Tesla said. 439 00:21:37,280 --> 00:21:40,160 But I think it was very clear that at least the talking was 440 00:21:40,160 --> 00:21:42,640 done by humans. There's humans during during the 441 00:21:42,640 --> 00:21:45,160 event talking through the Tesla Optima spot because it was a 442 00:21:45,160 --> 00:21:48,720 little too smooth to be AI, but that has some promise. 443 00:21:48,720 --> 00:21:51,640 It's incredible the degree of progress Tesla's made with the 444 00:21:51,640 --> 00:21:53,760 Optima spot. So maybe there's something there 445 00:21:53,760 --> 00:21:56,320 in the future as well. But the point remains that Tesla 446 00:21:56,320 --> 00:21:58,880 needs to do something and they need to do something quick. 447 00:21:59,160 --> 00:22:02,200 They need to grow their revenue. Their revenue cannot remain flat 448 00:22:02,240 --> 00:22:05,000 and have this type of valuation. Operating margins have been on a 449 00:22:05,000 --> 00:22:07,200 steady March down and they're starting the bottom. 450 00:22:07,200 --> 00:22:08,560 So we need to see revenue growth. 451 00:22:08,600 --> 00:22:11,680 We need to see margin growth. We need to see real advancements 452 00:22:11,680 --> 00:22:15,760 towards their goal of Robo Taxi. No more demos, no more events. 453 00:22:15,960 --> 00:22:19,240 We need to see them on the road functioning like we see with 454 00:22:19,240 --> 00:22:21,640 Waymos. So Tesla has a lot to live up to 455 00:22:21,680 --> 00:22:24,280 right now. For me, it's it's like it's been 456 00:22:24,280 --> 00:22:27,440 for the past four years. I'm too concerned about what's 457 00:22:27,440 --> 00:22:30,320 currently priced into the company and what Tesla has to 458 00:22:30,320 --> 00:22:32,480 amount to to be able to grow from here. 459 00:22:32,840 --> 00:22:34,440 They need to be able to mount to a lot. 460 00:22:34,720 --> 00:22:37,760 So for me, this is one that I firmly stay on the sidelines. 461 00:22:38,080 --> 00:22:41,240 I think it's going to be a very important earnings for Tesla. 462 00:22:41,480 --> 00:22:43,880 They need to grow their revenue. They need to grow margins. 463 00:22:43,880 --> 00:22:47,000 They need to show real progress, but I'm not personally confident 464 00:22:47,000 --> 00:22:49,040 enough that they're going to be able to do that to the degree 465 00:22:49,040 --> 00:22:52,720 necessary to justify the current valuation market cap. 466 00:22:52,720 --> 00:22:55,360 Let's go ahead and move on to ServiceNow. 467 00:22:55,400 --> 00:22:57,720 ServiceNow is reporting its earnings at the same time of 468 00:22:57,720 --> 00:23:00,120 Tesla after market close on Wednesday. 469 00:23:00,480 --> 00:23:03,320 Now, ServiceNow is a company that I think most people have 470 00:23:03,320 --> 00:23:05,480 heard of, but they probably don't know much about. 471 00:23:05,720 --> 00:23:08,960 If we look at what the company does, basically every company is 472 00:23:08,960 --> 00:23:11,240 made-up of processes. So if you have a big 473 00:23:11,240 --> 00:23:14,680 organization, you need to have process after process after 474 00:23:14,680 --> 00:23:16,840 process. How do you have a process for 475 00:23:16,840 --> 00:23:20,840 dealing with customers or sales teams or internal management 476 00:23:20,840 --> 00:23:23,800 hour, you name it. It's just a bunch of processes 477 00:23:23,800 --> 00:23:26,400 that these companies have to deal with, and ServiceNow 478 00:23:26,400 --> 00:23:29,040 automates processes. That's the most basic 479 00:23:29,040 --> 00:23:31,080 description of the company. Now you can see that they 480 00:23:31,080 --> 00:23:33,360 pivoted to AI. They're along with the trends 481 00:23:33,360 --> 00:23:37,320 here, but what this company does is automation of different 482 00:23:37,600 --> 00:23:40,680 variable processes. IT operations, customers, 483 00:23:40,680 --> 00:23:43,760 employees, app development, you name it, they have tools to 484 00:23:43,760 --> 00:23:44,960 automate it. Now. 485 00:23:44,960 --> 00:23:48,680 This has been incredibly incredible product for the 486 00:23:48,680 --> 00:23:52,400 market that sustained very fast, reliable growth. 487 00:23:52,880 --> 00:23:55,840 If we look at the revenue growth of service now, this is one of 488 00:23:55,840 --> 00:23:59,360 the revenue growth line items that looks like, well, it just 489 00:23:59,360 --> 00:24:02,400 frankly looks fake. It looks like it's a made-up 490 00:24:02,400 --> 00:24:05,480 one, almost like it's a scam because of how consistent it is. 491 00:24:05,840 --> 00:24:07,280 Let's go ahead and take a look at it here. 492 00:24:07,640 --> 00:24:09,400 This is on a trailing 12 month basis. 493 00:24:09,960 --> 00:24:13,480 That is the revenue growth over a trailing 12 month for service. 494 00:24:13,480 --> 00:24:16,840 Now you can see that every single quarter, I think going 495 00:24:16,840 --> 00:24:21,280 back to 2010 on a trailing 12 month basis has only been an 496 00:24:21,280 --> 00:24:25,240 incremental increase. Every single quarter has been an 497 00:24:25,240 --> 00:24:28,880 incremental increase for at least 10 years, around 14 years 498 00:24:28,880 --> 00:24:31,080 now. This much growth over time, 499 00:24:31,080 --> 00:24:35,760 especially growing at a rate of 24% still today, obviously means 500 00:24:35,760 --> 00:24:37,600 that this company is going to trade at a high multiple. 501 00:24:37,920 --> 00:24:41,040 Any company like this that's a SAS company growing this fast is 502 00:24:41,040 --> 00:24:44,560 going to be a little bit pricey. The company has a 55 Ford PE 503 00:24:44,560 --> 00:24:48,480 ratio and it trades at a 1.6% free cash flow yield and they 504 00:24:48,480 --> 00:24:51,400 also have a lot of stock based comp that eats into that free 505 00:24:51,400 --> 00:24:53,880 cash flow they generate. When we look at the returns of 506 00:24:53,880 --> 00:24:58,400 the company this year, it's up 33% outperforming the S&P 500 in 507 00:24:58,400 --> 00:25:00,840 the QQQ. So ServiceNow investors are 508 00:25:00,840 --> 00:25:04,400 getting alpha from this position and that is because of the 509 00:25:04,400 --> 00:25:07,280 continued fast accelerated revenue growth of the company. 510 00:25:07,800 --> 00:25:10,520 So ServiceNow is in that category of having high growth 511 00:25:10,520 --> 00:25:13,080 and high growth prospects, but trading at a very rich 512 00:25:13,080 --> 00:25:15,560 valuation. For that reason, I put it in a 513 00:25:15,560 --> 00:25:18,880 category where if I already held the stock, I'd probably still 514 00:25:18,880 --> 00:25:20,640 hold it. I would just hang on to it. 515 00:25:20,920 --> 00:25:23,760 But for me, it's not a buy today going into these earnings. 516 00:25:23,840 --> 00:25:27,040 Now at the same day on Wednesday after market close, we also have 517 00:25:27,040 --> 00:25:28,920 Canadian Pacific reporting earnings. 518 00:25:29,240 --> 00:25:31,880 Canadian Pacific is on paper a great company. 519 00:25:31,880 --> 00:25:34,800 It is a Class 1 railroad with a dominant network. 520 00:25:34,800 --> 00:25:37,120 It goes all the way from Canada to Mexico. 521 00:25:37,520 --> 00:25:40,200 They have opportunities to grow and grow their free cash flow 522 00:25:40,200 --> 00:25:42,320 per share. Everything looks good for this 523 00:25:42,320 --> 00:25:45,600 blue chip company, but regardless, it is not helped out 524 00:25:45,600 --> 00:25:47,160 with the returns of My Portfolio. 525 00:25:47,480 --> 00:25:50,240 My Portfolio is around $280,000 in the green. 526 00:25:50,800 --> 00:25:53,800 It's doing really well this year and over the past couple of 527 00:25:53,800 --> 00:25:56,960 years, it's just excelled and there's been a lot of companies 528 00:25:56,960 --> 00:26:01,120 that have outperformed greatly, companies like Costco that have 529 00:26:01,120 --> 00:26:03,240 crushed it. New holding with Booking, it's 530 00:26:03,240 --> 00:26:06,800 already doing super well, up almost $8500. 531 00:26:07,080 --> 00:26:09,480 We have other ones like Texas Roadhouse and Apple and 532 00:26:09,480 --> 00:26:11,920 Microsoft. We have ones like Moody's and 533 00:26:11,920 --> 00:26:15,000 S&P Global that are all adding to the performance, creating 534 00:26:15,000 --> 00:26:18,160 alpha for the portfolio. But then I have a couple, just a 535 00:26:18,160 --> 00:26:21,960 couple holdings that really aren't holding their weight and 536 00:26:21,960 --> 00:26:26,960 Canadian Pacific is one of them. I put $33,000 or $32,000 in this 537 00:26:26,960 --> 00:26:29,720 company. It's only up $1100. 538 00:26:30,040 --> 00:26:32,760 It's really going nowhere. And this is holding it for 539 00:26:33,120 --> 00:26:35,160 around a year, a little over a year. 540 00:26:35,640 --> 00:26:37,120 So it's been a short amount of time. 541 00:26:37,160 --> 00:26:39,920 Maybe this one will improve over the long term. 542 00:26:40,200 --> 00:26:42,960 But out of the companies in My Portfolio, Canadian Pacific 543 00:26:42,960 --> 00:26:45,480 right now is my most likely to sell. 544 00:26:45,760 --> 00:26:48,720 It's a company that I could be selling over the next year, and 545 00:26:48,720 --> 00:26:51,480 there's a couple reasons why. First of all, if we look at 546 00:26:51,480 --> 00:26:55,320 Canadian Pacific, we'll bring it up here again, it's a great 547 00:26:55,320 --> 00:26:57,080 company. It trades at a reasonable 548 00:26:57,080 --> 00:27:01,920 valuation, a 2 1/2% free cash flow yield, a 21 Ford PE ratio. 549 00:27:02,160 --> 00:27:04,880 So you're not paying like an insane price to buy this company 550 00:27:04,880 --> 00:27:07,040 right now. There's not too much baked into 551 00:27:07,040 --> 00:27:09,320 it. The revenue growth looks good, 552 00:27:09,680 --> 00:27:12,840 but it looks a lot less good when you factor in the fact that 553 00:27:12,840 --> 00:27:16,760 they did a major acquisition. So there's a lot of dilution and 554 00:27:16,760 --> 00:27:18,880 debt issuance to get this revenue growth. 555 00:27:19,280 --> 00:27:21,400 So this is not organic revenue growth. 556 00:27:21,440 --> 00:27:23,560 When we look at the earnings of the company, this is another 557 00:27:23,560 --> 00:27:25,640 issue I have. The earnings are all over the 558 00:27:25,640 --> 00:27:27,560 place. The company's not growing 559 00:27:27,560 --> 00:27:31,800 earnings anywhere like Texas Roadhouse, Costco, Microsoft, 560 00:27:31,800 --> 00:27:34,720 Apple, you name it. The companies in My Portfolio, 561 00:27:35,000 --> 00:27:37,000 most of them are growing their earnings rather fast. 562 00:27:37,320 --> 00:27:39,480 Canadian Pacific is in this category of trying to get this 563 00:27:39,480 --> 00:27:41,120 back on track. Another reason that I'm 564 00:27:41,120 --> 00:27:44,360 considering selling Canadian Pacific is simple opportunity 565 00:27:44,360 --> 00:27:46,160 cost. I don't think this company's 566 00:27:46,160 --> 00:27:47,360 bad. In fact, I think it's a 567 00:27:47,360 --> 00:27:50,880 incredibly durable, lifelong holding that you can hold 568 00:27:50,880 --> 00:27:53,960 without too much trouble. But there's an opportunity cost 569 00:27:53,960 --> 00:27:56,080 to every dollar you have invested in a company. 570 00:27:56,360 --> 00:27:58,280 There's typically more opportunities. 571 00:27:58,520 --> 00:28:00,720 When I look at the opportunities, I have the 572 00:28:00,720 --> 00:28:02,840 alternatives. There's other interesting 573 00:28:02,840 --> 00:28:05,960 companies, platform companies like Booking Holdings, companies 574 00:28:05,960 --> 00:28:08,360 like Uber and DoorDash, companies like Netflix and 575 00:28:08,360 --> 00:28:10,280 Amazon. So when I'm looking at this 576 00:28:10,280 --> 00:28:13,760 position, I'm always thinking if it's the best place to have my 577 00:28:13,760 --> 00:28:16,600 money, where I'll have the best future expected returns. 578 00:28:16,680 --> 00:28:18,880 And I believe I have a better track record investing in 579 00:28:18,880 --> 00:28:22,360 technology companies that I'm able to do in depth analysis on. 580 00:28:22,760 --> 00:28:25,760 So I also believe I could use the money probably better in 581 00:28:25,760 --> 00:28:28,200 other places. And that's why even though going 582 00:28:28,200 --> 00:28:30,080 into this earnings, I don't think there's going to be any 583 00:28:30,080 --> 00:28:32,080 problems. I expect Canadian Pacific to 584 00:28:32,080 --> 00:28:34,200 meet most of their goals, if not exceed them. 585 00:28:34,280 --> 00:28:37,640 I'm not concerned about this, this earnings in particular at 586 00:28:37,640 --> 00:28:40,600 all, but it's one that I am considering selling over the 587 00:28:40,600 --> 00:28:42,560 next year. We'll see what happens. 588 00:28:42,560 --> 00:28:44,400 Now moving on, we get into Thursday. 589 00:28:44,400 --> 00:28:48,160 We've already covered S&P Global with Moody's, S&P Global's 590 00:28:48,160 --> 00:28:51,480 reporting Thursday before market open and then we get to Thursday 591 00:28:51,480 --> 00:28:54,200 after market close, which we have a new company that made the 592 00:28:54,200 --> 00:28:57,440 list here as one of the most popular ones, which is Texas 593 00:28:57,440 --> 00:29:00,440 Roadhouse. This company has proven itself, 594 00:29:00,480 --> 00:29:03,240 the management have proven themselves, and now it's 595 00:29:03,240 --> 00:29:05,440 becoming one of the more recognized companies in the 596 00:29:05,440 --> 00:29:08,600 market because of its incredible free cash flow growth, its 597 00:29:08,600 --> 00:29:10,520 earnings growth and its revenue growth. 598 00:29:10,680 --> 00:29:12,600 Texas Roadhouse has been highly successful. 599 00:29:12,600 --> 00:29:15,720 If we look at the stock chart going back year to date, it's up 600 00:29:15,720 --> 00:29:19,240 52% this year, blowing away the indices. 601 00:29:19,240 --> 00:29:21,840 It's just been incredible. It's been quite the ride to be 602 00:29:21,840 --> 00:29:23,640 on. And again, this doesn't factor 603 00:29:23,640 --> 00:29:26,400 in dividends, which they pay a hefty dividend that they've been 604 00:29:26,400 --> 00:29:29,200 raising above 10% per year. So when you factor in the 605 00:29:29,200 --> 00:29:32,200 dividend, it's probably another 4 or 5% higher at this point. 606 00:29:32,360 --> 00:29:34,720 If you factor that being reinvested, When we look at the 607 00:29:34,720 --> 00:29:39,040 five years, Texas Roadhouse is up 273% over the past five 608 00:29:39,040 --> 00:29:40,840 years. When we look at the past 10 609 00:29:40,840 --> 00:29:44,920 years, it's up 563%. Fun fact, with dividends 610 00:29:44,920 --> 00:29:48,160 reinvested, Texas Roadhouse has outperformed Google year to 611 00:29:48,160 --> 00:29:50,800 date. The one year, the five year and 612 00:29:50,800 --> 00:29:53,160 the 10 year, this company's outperformed Google. 613 00:29:53,600 --> 00:29:57,280 It's monstrous performance has been a result of its incredible 614 00:29:57,280 --> 00:30:01,400 operations over the past decade. It's outperformed operationally 615 00:30:01,560 --> 00:30:05,160 and execution wise every casual dining restaurant. 616 00:30:05,480 --> 00:30:08,640 So you compare it to Olive Garden, different steak houses, 617 00:30:08,640 --> 00:30:11,440 Ruth Chris, You can compare it to companies like Chili's or Red 618 00:30:11,440 --> 00:30:14,160 Lobster or Cracker Barrel. Most of these companies are 619 00:30:14,160 --> 00:30:16,040 struggling. While Texas Roadhouse is 620 00:30:16,040 --> 00:30:18,240 outperforming most tech companies, it's also 621 00:30:18,240 --> 00:30:20,720 outperforming a lot of quick service restaurants. 622 00:30:20,720 --> 00:30:24,000 Ones even like like Chipotle or Starbucks. 623 00:30:24,000 --> 00:30:26,200 It's doing just as good or better than most of those. 624 00:30:26,640 --> 00:30:29,240 So we look at the exceptional performance of this company and 625 00:30:29,240 --> 00:30:32,240 the operations of it and it leaves some questions here. 626 00:30:32,240 --> 00:30:34,880 First of all, what is powering this growth? 627 00:30:35,120 --> 00:30:37,640 When we look at Texas Roadhouse, there's a couple of things I can 628 00:30:37,640 --> 00:30:40,960 look at to show you what's powering the performance of this 629 00:30:40,960 --> 00:30:43,920 stock because this isn't one that's just trading up for no 630 00:30:43,920 --> 00:30:46,480 reason. The stock isn't up 51% this year 631 00:30:46,600 --> 00:30:48,800 for no reason. When we look at the trailing 12 632 00:30:48,800 --> 00:30:52,200 month revenue and we look at that over time, it paints a 633 00:30:52,200 --> 00:30:54,560 clear picture. This company has always 634 00:30:54,560 --> 00:30:57,680 consistently grown over time. We see that all the way from 635 00:30:57,680 --> 00:31:01,800 2004 to 2018. We get into 2020 and they had a 636 00:31:01,800 --> 00:31:03,400 couple quarters where it went down. 637 00:31:03,520 --> 00:31:07,400 Understandably, if COVID didn't happen, you can imagine that 638 00:31:07,400 --> 00:31:09,760 this would be a nice smooth graph to the upside. 639 00:31:10,440 --> 00:31:13,520 But what happened since COVID was you'll notice that the the 640 00:31:13,520 --> 00:31:15,880 revenue growth actually accelerates. 641 00:31:16,160 --> 00:31:19,720 It's going up at a steeper trajectory now than pre COVID. 642 00:31:20,280 --> 00:31:24,680 So COVID created an instance where the strongest companies 643 00:31:24,680 --> 00:31:28,080 survived and they took market share from weaker companies 644 00:31:28,240 --> 00:31:31,160 because they had a low fixed cost and no long term debt. 645 00:31:31,520 --> 00:31:35,600 They could sail through this period no problem while other 646 00:31:35,600 --> 00:31:39,160 restaurants were going bankrupt. Then coming out of the pandemic, 647 00:31:39,840 --> 00:31:41,440 people started to go out to eat again. 648 00:31:41,720 --> 00:31:44,040 Well, of course, the companies they chose to go to were the 649 00:31:44,040 --> 00:31:47,600 only ones remaining open, which Texas Roadhouse was one of them. 650 00:31:47,920 --> 00:31:50,560 Texas Roadhouse increased their value proposition by keeping 651 00:31:50,560 --> 00:31:53,320 their prices low. They gained enormous amounts of 652 00:31:53,400 --> 00:31:56,560 same store sales, foot traffic, and then of course, they did 653 00:31:56,560 --> 00:32:00,240 very moderate 2 to 3% price increases, which was way below 654 00:32:00,240 --> 00:32:02,840 companies like McDonald's at the time, which were raising their 655 00:32:02,840 --> 00:32:06,760 prices enormously over this time period, earning even more 656 00:32:06,760 --> 00:32:09,200 customer traffic for companies like Texas Roadhouse. 657 00:32:09,720 --> 00:32:12,520 So their growth actually accelerated after the pandemic 658 00:32:12,760 --> 00:32:13,920 and they've been able to keep that up. 659 00:32:13,960 --> 00:32:16,240 Now during this time period, they also open up more 660 00:32:16,240 --> 00:32:19,640 restaurants than analysts expected at a faster cadence 661 00:32:19,640 --> 00:32:22,760 than analysts expected. Their same store or weekly 662 00:32:22,760 --> 00:32:25,280 average sales grew faster than expected. 663 00:32:25,600 --> 00:32:28,280 Every part of this business continued to increase week over 664 00:32:28,280 --> 00:32:29,880 week. We look at the total weekly 665 00:32:29,880 --> 00:32:35,400 sales, it was $158,000 per week per restaurant last quarter. 666 00:32:36,000 --> 00:32:40,080 Now we look at the to Go orders alone and that is now a $20,000 667 00:32:40,080 --> 00:32:42,440 per week business. The to go orders have been 668 00:32:42,440 --> 00:32:45,000 streamlined because of different operational improvements in 669 00:32:45,000 --> 00:32:46,680 their company. Because of the incredible 670 00:32:46,680 --> 00:32:50,080 operations of this company, the consistency of their food, the 671 00:32:50,080 --> 00:32:53,400 value proposition, the low prices, and the fact that their 672 00:32:53,400 --> 00:32:55,320 app works great. They have a good wait list. 673 00:32:55,480 --> 00:32:57,760 They have to go ordering down to a science now. 674 00:32:58,000 --> 00:33:01,960 They've really pushed out great operations, great processes, and 675 00:33:01,960 --> 00:33:04,800 that resulted in rapid improvements in their earnings 676 00:33:04,800 --> 00:33:07,120 per share. You can see the effects of 677 00:33:07,120 --> 00:33:09,160 market share gain in this industry. 678 00:33:09,520 --> 00:33:12,960 Texas Roadhouse growing in their brand awareness and market share 679 00:33:13,120 --> 00:33:15,920 has caused the earnings per share to accelerate. 680 00:33:16,280 --> 00:33:19,560 They have massive jumps up. In fact, in 2022, they're 681 00:33:19,560 --> 00:33:23,720 earning around $4.00 per year in earnings per share, as the most 682 00:33:23,720 --> 00:33:29,240 recent 12 months it was $5.51. Incredible growth and earnings 683 00:33:29,240 --> 00:33:33,440 per share 27% year over year. So you have a company that's 684 00:33:33,440 --> 00:33:35,160 growing your earnings faster than most, a big tech. 685 00:33:35,640 --> 00:33:37,960 That's why the company's outperforming most of big tech. 686 00:33:38,240 --> 00:33:42,000 Now, the earnings per share are expected to grow at a continued 687 00:33:42,040 --> 00:33:44,920 fast pace this quarter. And I think they'll hit their 688 00:33:44,920 --> 00:33:46,720 earnings per share target. If they miss. 689 00:33:46,720 --> 00:33:48,480 I believe it will be a very narrow miss. 690 00:33:48,480 --> 00:33:51,280 Now, while all of this has gone on, investors have started to 691 00:33:51,280 --> 00:33:54,120 pay attention to this company. It's getting more notice, more 692 00:33:54,120 --> 00:33:57,280 popularity across different forums, more videos made about 693 00:33:57,280 --> 00:34:00,480 it, Jim Cramer's talking about it, it's on CNBC. 694 00:34:00,680 --> 00:34:04,360 People are noting the fast growth of this company and some 695 00:34:04,360 --> 00:34:07,320 people have said that while Texas Roadhouse's growth was 696 00:34:07,320 --> 00:34:11,520 good, it now has some headwinds. And in fact, one investor here 697 00:34:11,520 --> 00:34:14,960 and analyst Joval Rodemus says that he's expecting a miss in 698 00:34:14,960 --> 00:34:17,080 revenue this quarter. Let's go ahead and take a look 699 00:34:17,080 --> 00:34:19,320 at why he believes Texas Roadhouse will miss this 700 00:34:19,320 --> 00:34:21,440 quarter. He says I expect a miss on 701 00:34:21,440 --> 00:34:24,920 revenue next quarter and comp headwinds, comparable headwinds. 702 00:34:25,280 --> 00:34:28,080 1 interesting phenomenon in investing is that good quarters 703 00:34:28,080 --> 00:34:31,280 become a headwind for next year's results and a bad quarter 704 00:34:31,280 --> 00:34:33,760 becomes a tailwind. That is because the very simple 705 00:34:33,760 --> 00:34:37,639 math, it's much easier to grow 10% from a low number than it is 706 00:34:37,639 --> 00:34:41,360 to grow 10% from a high number. In terms of comps, Texas 707 00:34:41,360 --> 00:34:44,040 Roadhouse enjoyed relatively easier comps in the first half 708 00:34:44,040 --> 00:34:48,000 of 2024 due to the timing of price increases last year, with 709 00:34:48,000 --> 00:34:50,199 the first increase taking place in late March. 710 00:34:50,520 --> 00:34:54,520 As a result, Q3 of 2024 will be the first quarter to fully 711 00:34:54,520 --> 00:34:57,880 overlap the price increase, which mounts to 2.2%. 712 00:34:58,120 --> 00:35:00,800 So there we have his argument for why Texas Roadhouse will 713 00:35:00,800 --> 00:35:02,800 likely miss on its revenue this quarter. 714 00:35:03,400 --> 00:35:07,800 In my opinion, I don't buy it. I think restaurants like Texas 715 00:35:07,800 --> 00:35:09,360 Roadhouse are doing so well right now. 716 00:35:09,640 --> 00:35:13,080 When I look at what's going on outside, just go outside, visit 717 00:35:13,080 --> 00:35:15,800 some Texas Roadhouses, go look at the app, go on a weekend, 718 00:35:15,800 --> 00:35:18,760 spend some time there on any of them across the country. 719 00:35:19,240 --> 00:35:22,760 People want to be outside. They want to be having social 720 00:35:22,760 --> 00:35:24,960 events. We are trapped inside during 721 00:35:24,960 --> 00:35:26,880 COVID. It wasn't a fun time period. 722 00:35:27,200 --> 00:35:28,680 People still have money to spend. 723 00:35:29,000 --> 00:35:31,560 Look at the stock market. People feel rich right now. 724 00:35:31,880 --> 00:35:34,880 They want to go outside and have experiences and of course they 725 00:35:34,880 --> 00:35:37,680 prioritize good experiences at good value. 726 00:35:38,000 --> 00:35:39,840 Texas Roadhouse offers both of that. 727 00:35:40,280 --> 00:35:42,600 I think they're same store sales this quarter will likely be 728 00:35:42,600 --> 00:35:45,600 around 7%. I think they're going to come in 729 00:35:45,600 --> 00:35:48,640 with five, 6% growth in in restaurant sales. 730 00:35:49,160 --> 00:35:51,240 I think the company will continue to gain market share 731 00:35:51,240 --> 00:35:54,240 from it's competitors because of how streamlined the offering is. 732 00:35:54,840 --> 00:35:57,800 And even if they do miss in revenue, which I personally 733 00:35:57,800 --> 00:36:00,560 think is unlikely, I don't see that as a big deal. 734 00:36:00,840 --> 00:36:03,000 The company's growing it's revenue quickly. 735 00:36:03,240 --> 00:36:06,240 Whether they miss by a percent or two doesn't really matter in 736 00:36:06,240 --> 00:36:08,640 the long run. We've seen so much fluctuation 737 00:36:08,640 --> 00:36:11,960 in revenue over time, but the growth story still remains. 738 00:36:12,240 --> 00:36:15,240 This company is on fire. I don't think it's lost steam 739 00:36:15,240 --> 00:36:17,320 yet. I'm still invested in it and I'm 740 00:36:17,320 --> 00:36:19,440 still holding my shares and that's going to be it for this 741 00:36:19,440 --> 00:36:20,960 busy week. If you want to see follow up 742 00:36:20,960 --> 00:36:23,240 analysis, just make sure you subscribe to the channel. 743 00:36:23,360 --> 00:36:24,080 That's all for now.