1 00:00:00,080 --> 00:00:02,480 Today on the Joseph Carlson Show, we finally got through the 2 00:00:02,480 --> 00:00:05,520 second week of earnings season. This one was jam packed with 3 00:00:05,520 --> 00:00:08,560 some more popular companies reporting earnings like Tesla, 4 00:00:08,560 --> 00:00:11,640 But many of the companies in My Portfolio also reported earnings 5 00:00:11,640 --> 00:00:13,800 this week, Texas Roadhouse being one of them. 6 00:00:14,080 --> 00:00:17,280 It's up around 2.8% after reporting earnings. 7 00:00:17,560 --> 00:00:20,160 This company's on fire. It's one that seemingly can't 8 00:00:20,160 --> 00:00:21,880 miss. We'll be diving into Texas 9 00:00:21,880 --> 00:00:24,560 Roadhouse's report and what's driving this company further. 10 00:00:24,560 --> 00:00:27,080 We also have two other notable companies have reported earnings 11 00:00:27,080 --> 00:00:29,960 this week, both Moody's Corporation and S&P Global. 12 00:00:30,360 --> 00:00:33,280 I own both of these companies. The credit rating agencies are 13 00:00:33,280 --> 00:00:35,920 proving once again why they're considered highly profitable 14 00:00:35,920 --> 00:00:37,840 duopolies. We're going to take a peek at 15 00:00:37,840 --> 00:00:40,000 their earnings and see what happened this quarter. 16 00:00:40,000 --> 00:00:43,560 We have one company, My Portfolio, that I've decided I'm 17 00:00:43,560 --> 00:00:46,200 going to sell. It's just a matter of time. 18 00:00:46,560 --> 00:00:49,800 Canadian Pacific once again reported their earnings and I'll 19 00:00:49,800 --> 00:00:53,080 be going over what's causing me to move out of this company. 20 00:00:53,080 --> 00:00:55,800 And then finally, the middle of this week, we had Tesla report 21 00:00:55,800 --> 00:00:58,360 their earnings. This was a crucial report for 22 00:00:58,360 --> 00:01:00,520 Tesla. The stock needed to move. 23 00:01:00,520 --> 00:01:04,840 This company needed momentum, and Elon Musk with Tesla hit the 24 00:01:04,840 --> 00:01:08,160 ball out of the park. Tesla stock is up 20% on the 25 00:01:08,160 --> 00:01:10,960 week, bringing this company back into the green year to date. 26 00:01:10,960 --> 00:01:13,880 This is a fantastic report, and I'll be going over what I think 27 00:01:13,880 --> 00:01:16,880 was both the most important part of the earnings report and the 28 00:01:16,880 --> 00:01:19,960 most important things that Elon Musk mentioned in the call. 29 00:01:19,960 --> 00:01:22,280 Now, right after this earnings report, in fact, just a couple 30 00:01:22,280 --> 00:01:25,200 days later, Elon Musk is celebrating the stock moving up. 31 00:01:25,520 --> 00:01:28,320 Tesla investors are celebrating and then the Wall Street Journal 32 00:01:28,320 --> 00:01:31,960 drops a hit piece on Elon Musk titled Elon Musk's Secret 33 00:01:31,960 --> 00:01:33,880 Conversation with Vladimir Putin. 34 00:01:33,960 --> 00:01:36,560 The title of this article sounds very scandalous, but is there 35 00:01:36,560 --> 00:01:38,800 anything to it? Why did something that most 36 00:01:38,800 --> 00:01:42,200 people don't do when they look at an article with this type of 37 00:01:42,200 --> 00:01:43,720 title? I read it. 38 00:01:44,400 --> 00:01:45,680 I actually read through the article. 39 00:01:45,720 --> 00:01:48,160 So I'll be going over how scandalous these secret 40 00:01:48,160 --> 00:01:51,280 conversations really were. And then finally, today marks a 41 00:01:51,280 --> 00:01:54,480 big day for Microsoft. They're dropping a brand new 42 00:01:54,480 --> 00:01:57,720 Call of Duty title. This one is Black Ops 6. 43 00:01:57,720 --> 00:02:01,640 This is one of their first AAA fully fledged games that's going 44 00:02:01,640 --> 00:02:04,040 to be offered on their subscription tear. 45 00:02:04,080 --> 00:02:06,520 We'll be looking over Microsoft's gaming future in 46 00:02:06,520 --> 00:02:08,600 this change of strategy. So we have a lot to get to in 47 00:02:08,600 --> 00:02:10,440 this episode. Let's go ahead and start off. 48 00:02:10,440 --> 00:02:14,680 This week is Earnings week #2 we kicked off Earnings Week number 49 00:02:14,680 --> 00:02:17,800 one with the only big company being Netflix. 50 00:02:18,040 --> 00:02:20,800 Netflix is always one of the first to report every earnings 51 00:02:20,800 --> 00:02:23,800 season, and it's extra exciting for Netflix because you get a 52 00:02:23,800 --> 00:02:27,400 lot of eyes on this stock. It's usually highly volatile and 53 00:02:27,600 --> 00:02:31,280 this time it was no different. Netflix stock rose 11% after 54 00:02:31,280 --> 00:02:33,760 their earnings beat. The report was solid from top to 55 00:02:33,760 --> 00:02:37,120 bottom, and it set the tone going into earnings season. 56 00:02:37,400 --> 00:02:40,520 Netflix was one of the first tests of this earnings season 57 00:02:40,800 --> 00:02:42,720 and it gave a green light to investors. 58 00:02:43,080 --> 00:02:46,400 Investors bought up more of the company as they could see this 59 00:02:46,400 --> 00:02:48,120 was a valuable and growing asset. 60 00:02:48,120 --> 00:02:49,880 But here we are capping off Week 2. 61 00:02:49,880 --> 00:02:52,640 A lot of other notable companies, both ones that are in 62 00:02:52,640 --> 00:02:55,720 My Portfolio have reported. And to give you an idea of what 63 00:02:55,720 --> 00:02:59,400 I'm doing currently, I'm sitting with My Portfolio enjoying the 64 00:02:59,400 --> 00:03:02,080 gains have happened over the past couple of weeks, but I'm 65 00:03:02,080 --> 00:03:04,680 also sitting with around $2000 in cash. 66 00:03:05,320 --> 00:03:07,560 All of this cash comes from dividends. 67 00:03:07,680 --> 00:03:09,680 You'll know when you're building up a portfolio. 68 00:03:09,680 --> 00:03:12,280 A lot of the companies that are really good companies that 69 00:03:12,280 --> 00:03:15,680 generate a lot of extra cash, they tend to pay dividends over 70 00:03:15,680 --> 00:03:17,160 time. If they're really good 71 00:03:17,160 --> 00:03:19,560 companies, they'll continually grow that dividend as well. 72 00:03:19,880 --> 00:03:22,160 That's what My Portfolio does for the most part. 73 00:03:22,440 --> 00:03:25,120 And you can see that a lot of these familiar names are paying 74 00:03:25,120 --> 00:03:27,560 hefty dividends. Now, many brokerages people will 75 00:03:27,560 --> 00:03:30,360 opt to have those dividends reinvested back into the company 76 00:03:30,360 --> 00:03:33,000 that paid them. In my case, I choose not to do 77 00:03:33,000 --> 00:03:34,880 that. Instead, I want that money to go 78 00:03:34,880 --> 00:03:38,200 back into the cash balance to form a nice pile of cash. 79 00:03:38,200 --> 00:03:41,080 And then I can wait patiently for which company I want to buy. 80 00:03:41,160 --> 00:03:43,600 And earnings season is a time of waiting patiently. 81 00:03:43,840 --> 00:03:46,160 I look at my company's go through earnings season. 82 00:03:46,400 --> 00:03:50,120 I see if any company that I want to own more of has a bad 83 00:03:50,120 --> 00:03:53,320 earnings report, or better yet, they have a good earnings report 84 00:03:53,480 --> 00:03:56,240 but sell off anyway. But so far, I'm struggling to 85 00:03:56,240 --> 00:03:59,120 find any great company that's had a great earnings report 86 00:03:59,160 --> 00:04:00,880 that's selling off anyway right now. 87 00:04:00,880 --> 00:04:03,560 Investors are in buying mode, and they're buying the dip on 88 00:04:03,560 --> 00:04:06,240 almost any company. Now, as we go through this week, 89 00:04:06,240 --> 00:04:09,200 one of the companies that just keeps winning is Texas 90 00:04:09,200 --> 00:04:11,120 Roadhouse. I've talked about this one a 91 00:04:11,120 --> 00:04:13,640 lot, but that's because I'm following the remarkable 92 00:04:13,640 --> 00:04:16,279 performance of this company. One of the best decisions I've 93 00:04:16,279 --> 00:04:20,279 made all year long is not selling a single share of Texas 94 00:04:20,279 --> 00:04:22,600 Roadhouse. There was a debate of whether or 95 00:04:22,600 --> 00:04:25,320 not we should take gains early this year, as even holding this 96 00:04:25,320 --> 00:04:27,840 company in 2023 led to a great return. 97 00:04:28,200 --> 00:04:33,520 But so far in 2024 alone, Texas Roadhouse is up 57%. 98 00:04:33,600 --> 00:04:37,680 The company pays a yield of around another 3%, so Texas 99 00:04:37,680 --> 00:04:41,080 Roadhouse's total returns for the year are near 60%. 100 00:04:41,120 --> 00:04:43,520 To give you an idea of how remarkable that performance is, 101 00:04:43,800 --> 00:04:47,480 if Texas Roadhouse was in the S&P 500, which right now it's 102 00:04:47,480 --> 00:04:51,000 not, but if it were, this company would be a top 20 103 00:04:51,000 --> 00:04:54,360 performance company this year. It's beat out so many different 104 00:04:54,360 --> 00:04:57,040 tech companies and familiar names that you hear about all 105 00:04:57,040 --> 00:04:59,880 the time online. It's doubled and tripled the 106 00:04:59,880 --> 00:05:03,000 performance of many great tech companies, and yet you don't 107 00:05:03,000 --> 00:05:06,080 hear about this one that much. In fact, looking at videos from 108 00:05:06,080 --> 00:05:10,400 CNBC and their coverage, live TV, different YouTube channels, 109 00:05:10,640 --> 00:05:12,440 you're not going to hear about companies like this. 110 00:05:12,440 --> 00:05:15,440 Because of their very small market cap, most investors are 111 00:05:15,440 --> 00:05:17,920 paying attention to much larger companies. 112 00:05:18,040 --> 00:05:20,160 So even though this one continues to have remarkable 113 00:05:20,160 --> 00:05:22,800 performance, it doesn't get a lot of attention paid. 114 00:05:22,880 --> 00:05:25,680 Now looking at the most recent quarter, it was as good as ever 115 00:05:25,680 --> 00:05:28,600 from this company. They posted $1.26 in earnings 116 00:05:28,600 --> 00:05:31,280 per share the most recent quarter, which is a growth rate 117 00:05:31,280 --> 00:05:34,280 of 32% year over year. The earnings per share on a 118 00:05:34,280 --> 00:05:37,280 trailing 12 month basis gives us a bit more of a smooth view. 119 00:05:37,280 --> 00:05:40,320 We have a bigger window. And even on a trailing 12 month 120 00:05:40,320 --> 00:05:44,760 basis on its most recent Q3 quarter, it grew by 34 percent, 121 00:05:45,040 --> 00:05:48,120 $5.82. And that is because even with 122 00:05:48,120 --> 00:05:50,840 restaurants, companies that aren't known for their operating 123 00:05:50,840 --> 00:05:54,120 leverage or scale, when they do meet certain critical mass 124 00:05:54,280 --> 00:05:56,360 points, they do have some operating leverage. 125 00:05:56,440 --> 00:05:58,800 Texas Roadhouse is seeing that in their business. 126 00:05:59,080 --> 00:06:01,320 They have a lot of efficiencies of scale that they've 127 00:06:01,320 --> 00:06:03,360 accomplished over the past couple of years. 128 00:06:03,360 --> 00:06:05,480 When we move over to the revenue, this looks good as 129 00:06:05,480 --> 00:06:08,160 well. It grew to 1.27 billion in the 130 00:06:08,160 --> 00:06:10,800 most recent quarter. That's 13.48%. 131 00:06:10,880 --> 00:06:14,240 They generated $56 million in cash where last year during the 132 00:06:14,240 --> 00:06:17,120 same quarter they only generated $13 million. 133 00:06:17,120 --> 00:06:19,880 The number of Texas Roadhouse restaurants continues to grow. 134 00:06:19,880 --> 00:06:23,440 It grew 7% year over year. Average weekly sales is one of 135 00:06:23,440 --> 00:06:25,360 the most important things at restaurants track. 136 00:06:25,360 --> 00:06:28,840 If we look at the total weekly sales, every single week they 137 00:06:28,840 --> 00:06:33,360 average 149,000, a 7 1/2 percent increase year over year. 138 00:06:33,480 --> 00:06:37,240 Texas Roadhouse increased their To Go orders by 10.8%. 139 00:06:37,320 --> 00:06:40,000 It's really good to see growth in their to Go orders. 140 00:06:40,000 --> 00:06:43,280 If you haven't ever ordered from Texas Roadhouse to go, they have 141 00:06:43,280 --> 00:06:46,120 streamlined this process. They have a window in the back 142 00:06:46,120 --> 00:06:47,840 of the restaurant where you go and pick it up. 143 00:06:47,840 --> 00:06:51,120 They have reserved parking. They have incredibly good to go 144 00:06:51,120 --> 00:06:53,000 packaging. They package the meals with a 145 00:06:53,000 --> 00:06:55,040 lot of care. It's one of the better 146 00:06:55,040 --> 00:06:57,160 experiences. And then in terms of forecasts 147 00:06:57,160 --> 00:06:59,520 of the future, they do give us a little bit of an outlook for 148 00:06:59,520 --> 00:07:02,800 next year, saying that they do expect positive comparable 149 00:07:02,800 --> 00:07:05,840 restaurant sales growth, including the benefit of price 150 00:07:05,840 --> 00:07:08,320 increases. They increase prices rather 151 00:07:08,320 --> 00:07:12,200 slowly, only one or two percent price increases at a time, but 152 00:07:12,200 --> 00:07:15,600 those small percentages do add up and then store weekly growth 153 00:07:15,600 --> 00:07:18,600 of approximately 5%. Their CapEx expenditures are 154 00:07:18,600 --> 00:07:21,400 going up to 400 million as they continue to open up new 155 00:07:21,400 --> 00:07:23,680 restaurants. So we have a positive outlook as 156 00:07:23,680 --> 00:07:26,840 well. Now anytime a stock goes up 60% 157 00:07:26,840 --> 00:07:30,120 in a single year, there's always a debate over what to do with 158 00:07:30,120 --> 00:07:32,880 this position. Investors have benefited greatly 159 00:07:32,920 --> 00:07:36,080 and this starts creating discussions of taking gains of 160 00:07:36,080 --> 00:07:40,040 the company becoming overvalued. Anytime a stock moves up this 161 00:07:40,040 --> 00:07:42,440 quickly, there's always that discussion. 162 00:07:42,840 --> 00:07:45,320 In my case, when I look at the valuation of Texas Roadhouse, 163 00:07:45,640 --> 00:07:48,080 there is no doubt that the multiples have expanded. 164 00:07:48,280 --> 00:07:50,760 When I was first buying the company, it was trading closer 165 00:07:50,760 --> 00:07:55,520 to a 20 PE ratio, so it was much cheaper on APE basis. 166 00:07:55,920 --> 00:07:59,920 Now it's getting up to the 26 range, the 27, the multiples are 167 00:07:59,920 --> 00:08:03,040 expanding and I'm benefiting from that multiple expansion. 168 00:08:03,400 --> 00:08:06,560 Another thing I can look at here is on a free cash flow basis. 169 00:08:06,840 --> 00:08:09,400 I remember that this top line here when I first bought the 170 00:08:09,400 --> 00:08:14,000 company was over 4%, so I was getting at a much better deal on 171 00:08:14,000 --> 00:08:17,240 its trailing free cash flows. The company is becoming a little 172 00:08:17,240 --> 00:08:20,160 bit more expensive for what you're paying for now. 173 00:08:20,160 --> 00:08:22,160 This can't go on to an infinite degree. 174 00:08:22,560 --> 00:08:24,680 Texas Roadhouse has an appropriate multiple it should 175 00:08:24,680 --> 00:08:27,840 trade for, but I still don't think the company is at that 176 00:08:27,840 --> 00:08:29,840 price point where I want to sell. 177 00:08:30,160 --> 00:08:32,400 From what I look at right now, between the multiples the 178 00:08:32,400 --> 00:08:35,080 company trades AT and the earnings growth of this company, 179 00:08:35,080 --> 00:08:39,000 the continued revenue growth, their capital return policy, I 180 00:08:39,000 --> 00:08:41,799 like everything I see. I'm going to hang on to this 181 00:08:41,799 --> 00:08:45,240 company as both the fundamentals and the valuation leave me no 182 00:08:45,240 --> 00:08:48,200 compelling reason to sell the company as of now. 183 00:08:48,440 --> 00:08:51,800 Next, we had Moody's and S&P Global, the two credit rating 184 00:08:51,800 --> 00:08:53,680 duopolies report their earnings this week. 185 00:08:53,920 --> 00:08:56,440 I won't go into the details of these ones other than saying 186 00:08:56,800 --> 00:08:59,080 that everything came in basically in line. 187 00:08:59,120 --> 00:09:01,760 It was business as usual for both of these companies. 188 00:09:01,840 --> 00:09:04,160 Moody's beat on their revenue and earnings per share 189 00:09:04,160 --> 00:09:06,840 estimates. S&P Global beat on their revenue 190 00:09:06,840 --> 00:09:08,520 and their earnings per share estimates. 191 00:09:08,680 --> 00:09:10,880 Both of these companies raised their guidance for the full 192 00:09:10,880 --> 00:09:12,680 year. Both of these companies traded 193 00:09:12,680 --> 00:09:15,560 down slightly after earnings. Now you might ask, why are these 194 00:09:15,560 --> 00:09:17,880 companies trading down when they beat on their earnings and 195 00:09:17,880 --> 00:09:19,880 raised guidance? Well, there's a lot of reasons 196 00:09:19,960 --> 00:09:22,440 for that, but the biggest culprit typically is investors 197 00:09:22,440 --> 00:09:25,600 expectations. Investors expectations Dr. 198 00:09:25,600 --> 00:09:28,000 results in earnings and investors and Moody's are 199 00:09:28,000 --> 00:09:30,080 already expecting predictable earnings. 200 00:09:30,080 --> 00:09:34,320 Moody's Corporation and S&P Global both trade at elevated 201 00:09:34,320 --> 00:09:40,440 valuations over the S&P 500. Moody's is at a 36 Ford PEA 2.7% 202 00:09:40,440 --> 00:09:44,200 free cash flow yield. S&P Global is at a 29 and a 2.9. 203 00:09:44,200 --> 00:09:46,640 So both of these companies are slightly more elevated in their 204 00:09:46,640 --> 00:09:49,080 valuation than most other quality companies. 205 00:09:49,160 --> 00:09:52,640 But Even so, another thing I'll mention about these companies is 206 00:09:52,640 --> 00:09:55,520 that they trade up ahead of earnings almost every time. 207 00:09:55,520 --> 00:09:58,360 So when I zoom out over the full year, we have a company here 208 00:09:58,360 --> 00:10:02,560 that's up 22% paying dividends every single quarter and growing 209 00:10:02,560 --> 00:10:04,760 their earnings per share and free cash flow per share. 210 00:10:05,040 --> 00:10:07,720 This is exactly the type of investments we want to make. 211 00:10:07,720 --> 00:10:10,240 S&P Global likewise has had a decent year. 212 00:10:10,240 --> 00:10:13,520 It's up 13%, not quite as good as the market this year. 213 00:10:13,520 --> 00:10:15,840 So we see a little bit of underperformance, but when we 214 00:10:15,840 --> 00:10:18,360 back out to the full year, that makes more sense. 215 00:10:18,400 --> 00:10:22,440 It's up 42% on a on your basis. Don't get discouraged by looking 216 00:10:22,440 --> 00:10:25,440 at the stock price trading around and ebbing and flowing 217 00:10:25,440 --> 00:10:27,320 week by week. Look at the overall 218 00:10:27,320 --> 00:10:29,640 fundamentals. These companies are growing 219 00:10:29,640 --> 00:10:32,840 dramatically. So right now I have a $100,000 220 00:10:32,840 --> 00:10:35,720 position in S&P Global. I'm holding every share, not 221 00:10:35,720 --> 00:10:38,560 trimming any. I have a $46,000 position in 222 00:10:38,560 --> 00:10:41,280 Moody's and likewise not selling a single share. 223 00:10:41,360 --> 00:10:44,040 Now, if we go to a company that I am planning on selling 224 00:10:44,040 --> 00:10:46,360 eventually, it's Canadian Pacific. 225 00:10:47,040 --> 00:10:49,680 Don't get me wrong, Canadian Pacific is a great company 226 00:10:49,680 --> 00:10:51,520 qualitatively. It has a dominant Moat. 227 00:10:51,520 --> 00:10:54,000 It has a network effect. It has a network that goes from 228 00:10:54,000 --> 00:10:57,200 Canada all the way to Mexico. They're building bridges, 229 00:10:57,200 --> 00:10:59,240 They're doing lots of investments for the future. 230 00:10:59,600 --> 00:11:03,320 Overall, it's a great company. And so, and no part of this am I 231 00:11:03,320 --> 00:11:06,200 trying to convince you that you need to sell this company if you 232 00:11:06,200 --> 00:11:08,440 hold it, or that it's going to be a company that performs 233 00:11:08,440 --> 00:11:10,760 poorly in the future. I actually think that Canadian 234 00:11:10,760 --> 00:11:14,640 Pacific, although it's been flat over the past year, it's not 235 00:11:14,640 --> 00:11:17,440 going to remain flat forever. This company will buyback 236 00:11:17,440 --> 00:11:20,120 shares, it will pay dividends, it will increase its stock price 237 00:11:20,120 --> 00:11:22,440 overtime as they grow their free cash flow. 238 00:11:22,440 --> 00:11:25,000 The reason that I'm strongly considering selling Canadian 239 00:11:25,000 --> 00:11:28,160 Pacific over the next three months is simply because I 240 00:11:28,160 --> 00:11:31,680 believe I can find better companies, ones that will grow a 241 00:11:31,680 --> 00:11:34,920 little faster, ones that will give me a little bit more upside 242 00:11:34,920 --> 00:11:37,080 in the stock. When I look at My Portfolio and 243 00:11:37,080 --> 00:11:39,960 my ability and stock picking, I notice some strengths and 244 00:11:39,960 --> 00:11:41,800 weaknesses. When we go into the real estate 245 00:11:41,800 --> 00:11:45,360 category, I've done OK there, I've made gains, but the real 246 00:11:45,360 --> 00:11:48,720 estate category has never been my strongest performing segment. 247 00:11:48,880 --> 00:11:51,560 And when I look at industrials, this is another category that 248 00:11:51,560 --> 00:11:54,600 I'm not having the best results. The companies that I've picked 249 00:11:54,600 --> 00:11:57,440 in the industrial category have done OK. 250 00:11:57,720 --> 00:12:02,000 I made a couple $1000 in Union Pacific, but I'm only up $600 in 251 00:12:02,000 --> 00:12:04,320 Canadian Pacific. I've held this company for over 252 00:12:04,320 --> 00:12:07,440 a year and my analysis on these companies can only go so deep. 253 00:12:07,680 --> 00:12:10,920 Where I find myself having the best results are the companies 254 00:12:10,920 --> 00:12:13,120 and industries that are more in my wheelhouse. 255 00:12:13,280 --> 00:12:16,000 I know Costco inside out. I know every aspect of this 256 00:12:16,000 --> 00:12:18,000 company. With Booking Holdings, It's 257 00:12:18,000 --> 00:12:21,200 another type of company that I feel very familiar with, these 258 00:12:21,200 --> 00:12:23,560 large tech companies that are network effect platform 259 00:12:23,680 --> 00:12:25,960 companies. I feel very comfortable doing 260 00:12:25,960 --> 00:12:29,240 analysis in them and so far I've had good gains in these type of 261 00:12:29,240 --> 00:12:31,160 stocks. Large network effect tech 262 00:12:31,160 --> 00:12:33,360 companies have been my specialty for a while. 263 00:12:33,640 --> 00:12:36,240 If I look at my results in companies like big tech, the 264 00:12:36,240 --> 00:12:39,000 ones that I've been emphasizing investments in for the past five 265 00:12:39,000 --> 00:12:41,440 years, these have done exceptionally well. 266 00:12:41,680 --> 00:12:43,680 Buying and holding them at the right time. 267 00:12:43,920 --> 00:12:46,440 I view my performance in them above average. 268 00:12:46,960 --> 00:12:49,360 These are the companies that I feel I know the most in, I can 269 00:12:49,360 --> 00:12:52,080 do the deepest analysis of and have the highest conviction in, 270 00:12:52,360 --> 00:12:55,200 and I've also had by far the best results in these type of 271 00:12:55,200 --> 00:12:57,680 companies. So rather than focusing on 272 00:12:57,680 --> 00:13:01,400 diversification for the sake of diversifying, feeling like I 273 00:13:01,400 --> 00:13:05,000 need to have a holding in an industrial company, I feel like 274 00:13:05,000 --> 00:13:08,320 my performance overall would be better if all of my capital was 275 00:13:08,320 --> 00:13:11,560 located into the type of companies I know the best. 276 00:13:11,720 --> 00:13:13,840 So don't be shocked at all if you see me exit out of this 277 00:13:13,840 --> 00:13:15,760 company over the next three months. 278 00:13:15,920 --> 00:13:19,360 What I'm waiting for is a dip in one of my watchlist companies. 279 00:13:19,360 --> 00:13:21,600 Now, moving on down the week, we get to the most important 280 00:13:21,600 --> 00:13:25,000 earnings report of the week by far, which was Tesla, and they 281 00:13:25,000 --> 00:13:28,680 knocked it out of the park. Elon Musk added $30 billion to 282 00:13:28,680 --> 00:13:32,720 his net worth in a single day as Tesla stock went up over 20% 283 00:13:32,880 --> 00:13:35,160 after earnings. Now, I've said many times that 284 00:13:35,160 --> 00:13:37,840 stocks trade up after earnings for all different reasons. 285 00:13:38,040 --> 00:13:40,520 Sometimes they're justified, sometimes they're not. 286 00:13:40,760 --> 00:13:43,960 This is one of the cases where I believe this upwards move is 287 00:13:43,960 --> 00:13:46,040 justified. Tesla investors have meaningful 288 00:13:46,040 --> 00:13:47,960 reason to be more bullish on the future. 289 00:13:48,000 --> 00:13:50,800 I liked almost everything in this report and I say almost 290 00:13:50,800 --> 00:13:53,200 because there's a couple things you could slightly nitpick. 291 00:13:53,440 --> 00:13:57,920 For example, the revenue growth was a little slow, 7.8%, a 292 00:13:58,240 --> 00:14:00,800 little on the slower side. Most of the companies I hold I'm 293 00:14:01,040 --> 00:14:04,560 trying to get revenue growth above 10%, but Even so, this was 294 00:14:04,560 --> 00:14:06,720 headed in the right direction, so not too bad. 295 00:14:06,800 --> 00:14:08,920 There's a couple metrics that are far more meaningful for 296 00:14:08,920 --> 00:14:11,040 Tesla. For example, the earnings per 297 00:14:11,040 --> 00:14:13,960 share growth. We saw 17% earnings per share 298 00:14:13,960 --> 00:14:15,800 growth. We have free cash flow growth 299 00:14:15,800 --> 00:14:18,200 that also finally headed in the right direction. 300 00:14:18,520 --> 00:14:21,040 This is reverting a downward trend this year. 301 00:14:21,040 --> 00:14:23,960 The free cash flow is up over 200% over the previous year. 302 00:14:23,960 --> 00:14:26,680 If we look at this on a trailing 12 month basis, you can see the 303 00:14:26,680 --> 00:14:29,440 reversal and trend. The free cash flows were headed 304 00:14:29,440 --> 00:14:32,080 down. They hit a bottom over the past 305 00:14:32,080 --> 00:14:35,160 two quarters, and then they're finally spiking back upwards. 306 00:14:35,160 --> 00:14:37,720 Tesla needs to move the free cash flow back up to this $8 307 00:14:37,720 --> 00:14:40,400 billion mark to get the valuation back in the right 308 00:14:40,400 --> 00:14:42,080 place. The cash balance is also 309 00:14:42,080 --> 00:14:44,960 incredible. They have $33 billion in cash, 310 00:14:45,280 --> 00:14:47,920 which is very different than most automotive companies. 311 00:14:48,320 --> 00:14:50,840 Most automotive companies are swamped with debt. 312 00:14:51,040 --> 00:14:52,480 They have high amounts of leverage. 313 00:14:52,760 --> 00:14:55,080 Tesla's unique in the amount of cash they hold. 314 00:14:55,280 --> 00:14:57,440 Gross margins ticked up last quarter. 315 00:14:57,440 --> 00:15:03,600 They went from 17.95%, so roughly 18% up to almost 20%. 316 00:15:03,840 --> 00:15:07,400 So a nice 2% increase quarter over quarter for the gross 317 00:15:07,400 --> 00:15:09,280 margins. That's another check mark for 318 00:15:09,280 --> 00:15:12,240 Tesla to finally have the margins bottom out and head back 319 00:15:12,240 --> 00:15:15,160 up in the right direction. We can see the same thing in the 320 00:15:15,160 --> 00:15:17,440 operating margins. This is one of my biggest 321 00:15:17,440 --> 00:15:20,480 criticisms for this company. Going back a couple years ago, 322 00:15:20,560 --> 00:15:24,120 they had operating margins of 19 percent, 17%. 323 00:15:24,400 --> 00:15:28,160 A lot of this was fueled by tax credits, stimulus checks and 324 00:15:28,240 --> 00:15:31,480 huge growth in China, and it seemed like Tesla had a lot of 325 00:15:31,480 --> 00:15:34,760 headwinds with rising interest rates making financing vehicles 326 00:15:34,760 --> 00:15:37,080 more difficult. The operating margins continue 327 00:15:37,080 --> 00:15:39,680 to decline. You cannot have a stock go up 328 00:15:39,920 --> 00:15:41,800 that has declining operating margins. 329 00:15:41,920 --> 00:15:45,440 I rarely ever see that happen. So an operating margins were 330 00:15:45,440 --> 00:15:49,880 going from 20% down to 5%. Of course, Tesla stock was going 331 00:15:49,880 --> 00:15:53,560 to tread water for years during that time period, but now we see 332 00:15:53,560 --> 00:15:57,400 the trend reversal. I predict that if Tesla can get 333 00:15:57,400 --> 00:16:00,840 operating margins even halfway back up to where they were 334 00:16:01,120 --> 00:16:04,960 around 15 or 16%, they'll surpass the amount of free cash 335 00:16:04,960 --> 00:16:07,800 flow they generated with 20% operating margins. 336 00:16:08,160 --> 00:16:10,480 The reason why is because they're delivering a lot more 337 00:16:10,480 --> 00:16:13,160 vehicles and they have a lot more revenue than they did back 338 00:16:13,160 --> 00:16:15,400 here. So Tesla does not need to have 339 00:16:15,400 --> 00:16:17,800 the same operating margins they had in 2022. 340 00:16:17,880 --> 00:16:20,600 They just need to keep moving most of the way there. 341 00:16:20,640 --> 00:16:23,640 One of the KPI's I think worth tracking for Tesla is the amount 342 00:16:23,640 --> 00:16:26,080 of vehicles they're producing and the amount of vehicles that 343 00:16:26,080 --> 00:16:28,520 are being delivered. Overall, there's not a lot of 344 00:16:28,520 --> 00:16:32,240 growth in the amount of models delivered or produced, but Elon 345 00:16:32,240 --> 00:16:35,000 Musk gave us reason to believe that this is going to improve. 346 00:16:35,040 --> 00:16:36,600 Here's what he said on the earnings call. 347 00:16:36,960 --> 00:16:39,760 I think Paula Piervo or what should they assume for vehicle 348 00:16:41,160 --> 00:16:46,720 sales growth next year? And at the risk of to take a bit 349 00:16:46,720 --> 00:16:50,920 of risk here, I do want to give some some rough estimate, which 350 00:16:50,920 --> 00:16:54,160 is I think 20 to 30% vehicle growth. 351 00:16:54,440 --> 00:16:57,160 Next year, now it gives a disclaimer there's no guarantees 352 00:16:57,160 --> 00:17:01,360 here, but he's predicting 20 to 30% vehicle growth next year. 353 00:17:01,480 --> 00:17:04,480 So even the question over the flat deliveries and production, 354 00:17:04,480 --> 00:17:07,160 we can see that we're projecting growth in the future, which is 355 00:17:07,160 --> 00:17:09,480 another check mark. The last thing I'll point out 356 00:17:09,480 --> 00:17:11,960 about Tesla stock is the energy and storage business. 357 00:17:11,960 --> 00:17:14,760 If we look at the revenue and we just look at that segment alone, 358 00:17:15,079 --> 00:17:17,319 you can see that for a few quarters it looked like it was 359 00:17:17,319 --> 00:17:20,520 tapering off, flattening out, and again, they somehow 360 00:17:20,680 --> 00:17:23,839 reignited growth in this part of the business on a trailing 361 00:17:23,839 --> 00:17:26,480 basis. It's growing 43% year over year. 362 00:17:26,880 --> 00:17:29,360 The energy business is a jewel of Tesla. 363 00:17:29,360 --> 00:17:31,840 It's one of the better parts of the company overall. 364 00:17:31,840 --> 00:17:34,840 This was by far the strongest report that Tesla has given out 365 00:17:34,840 --> 00:17:37,600 over the past three years. And I think this sets the 366 00:17:37,600 --> 00:17:39,880 company up to go in the right direction. 367 00:17:40,120 --> 00:17:42,800 This is something Tesla investors desperately needed. 368 00:17:42,880 --> 00:17:46,040 They needed these metrics moving in the right direction and soon, 369 00:17:46,280 --> 00:17:48,640 and they're getting it. Valuation, of course, is a whole 370 00:17:48,640 --> 00:17:51,600 different concern. Tesla is a highly rated stock. 371 00:17:51,600 --> 00:17:54,320 It trades at a premium valuation, but fundamentally, it 372 00:17:54,320 --> 00:17:58,000 looks very strong right now. Now, very soon after that great 373 00:17:58,000 --> 00:18:01,760 earnings report from Tesla and the stock moving up 20%, the 374 00:18:01,760 --> 00:18:05,720 Wall Street Journal decided to drop a big hit piece on Elon 375 00:18:05,720 --> 00:18:09,080 Musk, the title of which is Elon Musk's secret conversations with 376 00:18:09,080 --> 00:18:11,640 Vladimir Putin. And right there, the Wall Street 377 00:18:11,640 --> 00:18:13,400 Journal knows what they're doing. 378 00:18:13,640 --> 00:18:16,520 They understand media. They know the effect this will 379 00:18:16,520 --> 00:18:19,400 have. The effect this will have is 380 00:18:19,400 --> 00:18:22,440 millions and millions of people will read the headline. 381 00:18:22,800 --> 00:18:26,800 They'll conclude all of these nefarious conclusions from the 382 00:18:26,800 --> 00:18:29,560 headline and they will not read the article. 383 00:18:29,560 --> 00:18:31,680 The Wall Street Journal intentionally makes their 384 00:18:31,680 --> 00:18:35,040 articles very long and detailed. In many cases, they don't 385 00:18:35,040 --> 00:18:39,360 summarize the main points unless it's somewhere on Page 3 or 4 of 386 00:18:39,360 --> 00:18:41,040 the article. Now, you can say that they're 387 00:18:41,040 --> 00:18:44,280 being detailed and thorough with the reporting, but it also makes 388 00:18:44,280 --> 00:18:47,440 it difficult for the majority of people to actually know what are 389 00:18:47,520 --> 00:18:49,280 the key takeaways that went on here. 390 00:18:49,320 --> 00:18:51,520 What I got from this article is one of the more contrived 391 00:18:51,520 --> 00:18:54,160 efforts to attack Elon Musk. We can jump right to the most 392 00:18:54,160 --> 00:18:56,000 provocative parts of the article. 393 00:18:56,000 --> 00:18:58,920 This is really the heart of it. Putin had asked the billionaire 394 00:18:58,920 --> 00:19:02,520 to avoid activating his Starlink satellite Internet service over 395 00:19:02,520 --> 00:19:05,680 Taiwan as a favor to the Chinese leader, Xi Jinping. 396 00:19:06,000 --> 00:19:08,760 This is according to two people that were familiar with it and 397 00:19:08,760 --> 00:19:10,000 briefed by the Wall Street Journal. 398 00:19:10,040 --> 00:19:13,160 And that is the most scandalous, the most provocative portion of 399 00:19:13,160 --> 00:19:15,680 this entire piece. One thing that's missing with 400 00:19:15,680 --> 00:19:18,200 this article is the acknowledgement that they have 401 00:19:18,200 --> 00:19:21,840 no evidence that Elon Musk listened to what he said, that 402 00:19:21,840 --> 00:19:25,000 he made any type of changes because of Putin's request. 403 00:19:25,520 --> 00:19:27,520 There's only the claim that Putin asked this. 404 00:19:27,840 --> 00:19:31,760 There's no evidence that Elon Musk changed anything he's doing 405 00:19:31,760 --> 00:19:34,560 because of Putin's request. In fact, there's a lot of reason 406 00:19:34,560 --> 00:19:37,440 to believe that Elon Musk did nothing different because of 407 00:19:37,440 --> 00:19:40,720 this request, because Taiwan has their own rules over whether or 408 00:19:40,720 --> 00:19:44,200 not Starling can fly over them, and so far, there's no evidence 409 00:19:44,200 --> 00:19:46,880 whatsoever that Elon Musk broke any of those rules. 410 00:19:46,880 --> 00:19:50,360 So from this scary, provocative headline that Elon Musk is doing 411 00:19:50,360 --> 00:19:53,800 something secret with Vladimir Putin, they even encourage this 412 00:19:53,800 --> 00:19:57,120 thought by photoshopping Elon Musk's face halfway with 413 00:19:57,120 --> 00:19:59,240 Vladimir Putin's. We learned that there's no 414 00:19:59,240 --> 00:20:02,320 evidence Elon Musk did anything that Vladimir Putin asked. 415 00:20:02,760 --> 00:20:04,720 There's no evidence he changed his behavior. 416 00:20:04,720 --> 00:20:07,240 The only real claim here that's actually somewhat verified is 417 00:20:07,240 --> 00:20:10,440 that they had a conversation. And obviously with elections 418 00:20:10,440 --> 00:20:14,240 being so close and Elon Musk being such a prominent endorser 419 00:20:14,520 --> 00:20:17,000 of Donald Trump, it's going to lead a lot of people to believe 420 00:20:17,000 --> 00:20:18,960 that part of this is politically motivated. 421 00:20:19,000 --> 00:20:20,720 Right now, the elections are a coin flip. 422 00:20:20,720 --> 00:20:23,560 They could go either way. When things get this close, when 423 00:20:23,560 --> 00:20:26,640 elections are this tense, it seems like a lot of journals and 424 00:20:26,640 --> 00:20:30,240 news outlets, we'll post things with very spicy headlines to try 425 00:20:30,240 --> 00:20:32,520 to make a dent in things. And this is the same way that 426 00:20:32,520 --> 00:20:35,120 the Co founder of Palantir reads this article. 427 00:20:35,240 --> 00:20:37,600 So what's going on, Andrew, is you got to look at the 428 00:20:37,600 --> 00:20:40,200 background right now. Europe is panicking, the Harris 429 00:20:40,200 --> 00:20:42,000 camp is panicking. There's two weeks to the 430 00:20:42,000 --> 00:20:43,800 election and they are throwing stuff at the wall. 431 00:20:43,800 --> 00:20:45,960 And what's happened in the last couple weeks, what's happened is 432 00:20:45,960 --> 00:20:48,880 there's amazing momentum against the Harris team, right? 433 00:20:48,880 --> 00:20:51,680 So you have, you have, you know, tell them not to go into Israel. 434 00:20:51,840 --> 00:20:53,320 They kill the bad guys in Israel. 435 00:20:53,320 --> 00:20:54,480 So they look really, really dumb. 436 00:20:54,480 --> 00:20:56,360 I'm telling him to stay out of Rafa where they got Synoir, 437 00:20:56,600 --> 00:20:58,120 right? You got the Tabata guy who 438 00:20:58,120 --> 00:21:00,480 worked for Mali, who they brought in is clearly seems to 439 00:21:00,480 --> 00:21:02,640 be leaking stuff that you know, her father worked for the 440 00:21:02,640 --> 00:21:05,160 Iranian regime. They're Europe right now, of 441 00:21:05,160 --> 00:21:07,840 course, really angry at must they had to fire Terry Britain, 442 00:21:07,840 --> 00:21:09,960 the commissioner. He used to be a minister of the 443 00:21:09,960 --> 00:21:11,680 French government. People in French government do 444 00:21:11,680 --> 00:21:15,080 not like Elon right now. He just shamed their them just 445 00:21:15,080 --> 00:21:16,920 two days ago came out. They're trying to kill Twitter. 446 00:21:17,040 --> 00:21:19,440 So, so so basically they have all this momentum against them 447 00:21:19,560 --> 00:21:21,120 and they're panicking and they're throwing stuff at the 448 00:21:21,120 --> 00:21:23,120 wall. And, and the last time we talked 449 00:21:23,120 --> 00:21:25,320 about Russia this close to an election, it was the 450 00:21:25,320 --> 00:21:28,120 intelligence community. You're working on a fake 451 00:21:28,120 --> 00:21:30,200 document that Hillary created. They spent three years of asking 452 00:21:30,200 --> 00:21:31,840 him for BS. So it's like you have this 453 00:21:31,840 --> 00:21:33,120 context that you have to look at. 454 00:21:33,120 --> 00:21:35,080 What do you think? Like I mentioned, most people 455 00:21:35,080 --> 00:21:37,000 reading through this are going to view it through a political 456 00:21:37,000 --> 00:21:39,880 lens because of the timing of the article and the lack of 457 00:21:39,880 --> 00:21:43,080 concrete evidence of any type of wrongdoing from Elon Musk. 458 00:21:43,120 --> 00:21:44,720 So we'll see where this article goes. 459 00:21:44,720 --> 00:21:47,480 Maybe they'll dig up more evidence and find actual 460 00:21:47,480 --> 00:21:51,480 wrongdoing and rules violated from Elon Musk, but so far with 461 00:21:51,480 --> 00:21:54,240 this article, to me it seems like a lot to do about nothing. 462 00:21:54,440 --> 00:21:56,760 Now finally we're getting towards the holiday season. 463 00:21:56,760 --> 00:21:59,960 As we get towards the end of the year, Activision Blizzard 464 00:21:59,960 --> 00:22:02,680 typically releases one of their big franchise games. 465 00:22:02,680 --> 00:22:04,520 This time it's the Call of Duty series. 466 00:22:04,760 --> 00:22:08,680 This is one of the more tried and true branded series. 467 00:22:08,680 --> 00:22:11,440 It's going to sell a lot. This is the reason that 468 00:22:11,440 --> 00:22:16,560 Microsoft invested $75 billion into this company was for the 469 00:22:16,560 --> 00:22:19,680 franchise Call of Duty. It's by far their most big and 470 00:22:19,680 --> 00:22:21,680 profitable franchise. Now. 471 00:22:21,680 --> 00:22:24,600 One thing that Microsoft is doing is trying to change the 472 00:22:24,600 --> 00:22:27,640 behavior of its customers. Anytime you try to change the 473 00:22:27,640 --> 00:22:30,160 behavior of customers, that is a difficult challenge. 474 00:22:30,360 --> 00:22:33,200 Being able to pull that off shows a lot of strength and 475 00:22:33,200 --> 00:22:35,760 skill in navigating these type of challenges. 476 00:22:35,760 --> 00:22:37,760 Call of Duty, one of the most successful entertainment 477 00:22:37,760 --> 00:22:41,000 properties ever, became part of Microsoft portfolio and the 478 00:22:41,000 --> 00:22:43,440 Activision deal. The company decided to make its 479 00:22:43,440 --> 00:22:46,280 latest installment of the shooter series called Call of 480 00:22:46,280 --> 00:22:50,520 Duty Black Ops 6, available at launch for streaming or 481 00:22:50,520 --> 00:22:54,360 downloading, loading via Game Pass for 1999 a month. 482 00:22:54,520 --> 00:22:57,920 Now this may not seem again like that big of a deal, but if you 483 00:22:57,920 --> 00:23:01,200 go on to any online gaming forum, if you go to Reddit, if 484 00:23:01,200 --> 00:23:04,400 you go to anywhere where people discuss buying this game, the 485 00:23:04,400 --> 00:23:07,920 consensus is very clear. People say don't buy Call of 486 00:23:07,920 --> 00:23:10,880 Duty Black Ops 6, just sign up for Game Pass. 487 00:23:11,440 --> 00:23:15,600 Why pay $70.00 upfront not knowing if the game is really 488 00:23:15,600 --> 00:23:19,160 great or not when you can try it out for $19.00 a month? 489 00:23:19,280 --> 00:23:22,200 There's going to be millions of people that sign up for Game 490 00:23:22,200 --> 00:23:26,400 Pass simply to try out Call of Duty Black Ops 6 and not pay 491 00:23:26,400 --> 00:23:29,320 that $70.00 upfront. Analysts are trying to figure 492 00:23:29,320 --> 00:23:31,840 out whether or not the strategy will prove successful. 493 00:23:31,840 --> 00:23:34,760 One of them says the big picture vision here is Netflix for video 494 00:23:34,760 --> 00:23:37,360 games, and I think it's a very viable option. 495 00:23:37,680 --> 00:23:40,440 I don't know if it will happen all at once, but Microsoft is in 496 00:23:40,440 --> 00:23:43,720 a good position to do that. Some analysts are very skeptical 497 00:23:43,720 --> 00:23:46,640 and negative on this type of subscription game pass system. 498 00:23:46,920 --> 00:23:49,760 They say the video game business is not suited for an all you can 499 00:23:49,760 --> 00:23:52,960 eat model, at least not at the price that makes sense for 500 00:23:52,960 --> 00:23:55,080 publishers. I disagree with those analysts 501 00:23:55,080 --> 00:23:58,320 and I think that Microsoft is well positioned to pull off this 502 00:23:58,320 --> 00:24:00,920 type of subscription model for AAA video games. 503 00:24:01,040 --> 00:24:03,240 The truth is that gamers are already used to paying for 504 00:24:03,240 --> 00:24:06,360 things on a subscription model. They pay for season passes. 505 00:24:06,360 --> 00:24:09,640 They pay for microtransactions. It's actually becoming more rare 506 00:24:09,640 --> 00:24:12,560 that a video game makes the majority of its money on the 507 00:24:12,560 --> 00:24:15,880 upfront sale. Most people have freemium games 508 00:24:15,880 --> 00:24:18,800 where they download the game for free and they purchase season 509 00:24:18,800 --> 00:24:22,080 passes, skins, and additional in game purchases. 510 00:24:22,120 --> 00:24:25,320 In this case, Microsoft is simply just saying buy this one 511 00:24:25,320 --> 00:24:28,960 pass and you'll have access to a ton of video games on a monthly 512 00:24:28,960 --> 00:24:30,680 basis. There's no guarantee that 513 00:24:30,680 --> 00:24:32,840 Microsoft will be able to pull this off, but they have a very 514 00:24:32,840 --> 00:24:34,640 good chance. That's going to be it for this 515 00:24:34,640 --> 00:24:36,480 episode. Hope you enjoyed, see you in the 516 00:24:36,480 --> 00:24:37,000 next one.