Today on the Joseph Carlson Show, we finally got through the
second week of earnings season. This one was jam packed with
some more popular companies reporting earnings like Tesla,
But many of the companies in My Portfolio also reported earnings
this week, Texas Roadhouse being one of them.
It's up around 2.8% after reporting earnings.
This company's on fire. It's one that seemingly can't
miss. We'll be diving into Texas
Roadhouse's report and what's driving this company further.
We also have two other notable companies have reported earnings
this week, both Moody's Corporation and S&P Global.
I own both of these companies. The credit rating agencies are
proving once again why they're considered highly profitable
duopolies. We're going to take a peek at
their earnings and see what happened this quarter.
We have one company, My Portfolio, that I've decided I'm
going to sell. It's just a matter of time.
Canadian Pacific once again reported their earnings and I'll
be going over what's causing me to move out of this company.
And then finally, the middle of this week, we had Tesla report
their earnings. This was a crucial report for
Tesla. The stock needed to move.
This company needed momentum, and Elon Musk with Tesla hit the
ball out of the park. Tesla stock is up 20% on the
week, bringing this company back into the green year to date.
This is a fantastic report, and I'll be going over what I think
was both the most important part of the earnings report and the
most important things that Elon Musk mentioned in the call.
Now, right after this earnings report, in fact, just a couple
days later, Elon Musk is celebrating the stock moving up.
Tesla investors are celebrating and then the Wall Street Journal
drops a hit piece on Elon Musk titled Elon Musk's Secret
Conversation with Vladimir Putin.
The title of this article sounds very scandalous, but is there
anything to it? Why did something that most
people don't do when they look at an article with this type of
title? I read it.
I actually read through the article.
So I'll be going over how scandalous these secret
conversations really were. And then finally, today marks a
big day for Microsoft. They're dropping a brand new
Call of Duty title. This one is Black Ops 6.
This is one of their first AAA fully fledged games that's going
to be offered on their subscription tear.
We'll be looking over Microsoft's gaming future in
this change of strategy. So we have a lot to get to in
this episode. Let's go ahead and start off.
This week is Earnings week #2 we kicked off Earnings Week number
one with the only big company being Netflix.
Netflix is always one of the first to report every earnings
season, and it's extra exciting for Netflix because you get a
lot of eyes on this stock. It's usually highly volatile and
this time it was no different. Netflix stock rose 11% after
their earnings beat. The report was solid from top to
bottom, and it set the tone going into earnings season.
Netflix was one of the first tests of this earnings season
and it gave a green light to investors.
Investors bought up more of the company as they could see this
was a valuable and growing asset.
But here we are capping off Week 2.
A lot of other notable companies, both ones that are in
My Portfolio have reported. And to give you an idea of what
I'm doing currently, I'm sitting with My Portfolio enjoying the
gains have happened over the past couple of weeks, but I'm
also sitting with around $2000 in cash.
All of this cash comes from dividends.
You'll know when you're building up a portfolio.
A lot of the companies that are really good companies that
generate a lot of extra cash, they tend to pay dividends over
time. If they're really good
companies, they'll continually grow that dividend as well.
That's what My Portfolio does for the most part.
And you can see that a lot of these familiar names are paying
hefty dividends. Now, many brokerages people will
opt to have those dividends reinvested back into the company
that paid them. In my case, I choose not to do
that. Instead, I want that money to go
back into the cash balance to form a nice pile of cash.
And then I can wait patiently for which company I want to buy.
And earnings season is a time of waiting patiently.
I look at my company's go through earnings season.
I see if any company that I want to own more of has a bad
earnings report, or better yet, they have a good earnings report
but sell off anyway. But so far, I'm struggling to
find any great company that's had a great earnings report
that's selling off anyway right now.
Investors are in buying mode, and they're buying the dip on
almost any company. Now, as we go through this week,
one of the companies that just keeps winning is Texas
Roadhouse. I've talked about this one a
lot, but that's because I'm following the remarkable
performance of this company. One of the best decisions I've
made all year long is not selling a single share of Texas
Roadhouse. There was a debate of whether or
not we should take gains early this year, as even holding this
company in 2023 led to a great return.
But so far in 2024 alone, Texas Roadhouse is up 57%.
The company pays a yield of around another 3%, so Texas
Roadhouse's total returns for the year are near 60%.
To give you an idea of how remarkable that performance is,
if Texas Roadhouse was in the S&P 500, which right now it's
not, but if it were, this company would be a top 20
performance company this year. It's beat out so many different
tech companies and familiar names that you hear about all
the time online. It's doubled and tripled the
performance of many great tech companies, and yet you don't
hear about this one that much. In fact, looking at videos from
CNBC and their coverage, live TV, different YouTube channels,
you're not going to hear about companies like this.
Because of their very small market cap, most investors are
paying attention to much larger companies.
So even though this one continues to have remarkable
performance, it doesn't get a lot of attention paid.
Now looking at the most recent quarter, it was as good as ever
from this company. They posted $1.26 in earnings
per share the most recent quarter, which is a growth rate
of 32% year over year. The earnings per share on a
trailing 12 month basis gives us a bit more of a smooth view.
We have a bigger window. And even on a trailing 12 month
basis on its most recent Q3 quarter, it grew by 34 percent,
$5.82. And that is because even with
restaurants, companies that aren't known for their operating
leverage or scale, when they do meet certain critical mass
points, they do have some operating leverage.
Texas Roadhouse is seeing that in their business.
They have a lot of efficiencies of scale that they've
accomplished over the past couple of years.
When we move over to the revenue, this looks good as
well. It grew to 1.27 billion in the
most recent quarter. That's 13.48%.
They generated $56 million in cash where last year during the
same quarter they only generated $13 million.
The number of Texas Roadhouse restaurants continues to grow.
It grew 7% year over year. Average weekly sales is one of
the most important things at restaurants track.
If we look at the total weekly sales, every single week they
average 149,000, a 7 1/2 percent increase year over year.
Texas Roadhouse increased their To Go orders by 10.8%.
It's really good to see growth in their to Go orders.
If you haven't ever ordered from Texas Roadhouse to go, they have
streamlined this process. They have a window in the back
of the restaurant where you go and pick it up.
They have reserved parking. They have incredibly good to go
packaging. They package the meals with a
lot of care. It's one of the better
experiences. And then in terms of forecasts
of the future, they do give us a little bit of an outlook for
next year, saying that they do expect positive comparable
restaurant sales growth, including the benefit of price
increases. They increase prices rather
slowly, only one or two percent price increases at a time, but
those small percentages do add up and then store weekly growth
of approximately 5%. Their CapEx expenditures are
going up to 400 million as they continue to open up new
restaurants. So we have a positive outlook as
well. Now anytime a stock goes up 60%
in a single year, there's always a debate over what to do with
this position. Investors have benefited greatly
and this starts creating discussions of taking gains of
the company becoming overvalued. Anytime a stock moves up this
quickly, there's always that discussion.
In my case, when I look at the valuation of Texas Roadhouse,
there is no doubt that the multiples have expanded.
When I was first buying the company, it was trading closer
to a 20 PE ratio, so it was much cheaper on APE basis.
Now it's getting up to the 26 range, the 27, the multiples are
expanding and I'm benefiting from that multiple expansion.
Another thing I can look at here is on a free cash flow basis.
I remember that this top line here when I first bought the
company was over 4%, so I was getting at a much better deal on
its trailing free cash flows. The company is becoming a little
bit more expensive for what you're paying for now.
This can't go on to an infinite degree.
Texas Roadhouse has an appropriate multiple it should
trade for, but I still don't think the company is at that
price point where I want to sell.
From what I look at right now, between the multiples the
company trades AT and the earnings growth of this company,
the continued revenue growth, their capital return policy, I
like everything I see. I'm going to hang on to this
company as both the fundamentals and the valuation leave me no
compelling reason to sell the company as of now.
Next, we had Moody's and S&P Global, the two credit rating
duopolies report their earnings this week.
I won't go into the details of these ones other than saying
that everything came in basically in line.
It was business as usual for both of these companies.
Moody's beat on their revenue and earnings per share
estimates. S&P Global beat on their revenue
and their earnings per share estimates.
Both of these companies raised their guidance for the full
year. Both of these companies traded
down slightly after earnings. Now you might ask, why are these
companies trading down when they beat on their earnings and
raised guidance? Well, there's a lot of reasons
for that, but the biggest culprit typically is investors
expectations. Investors expectations Dr.
results in earnings and investors and Moody's are
already expecting predictable earnings.
Moody's Corporation and S&P Global both trade at elevated
valuations over the S&P 500. Moody's is at a 36 Ford PEA 2.7%
free cash flow yield. S&P Global is at a 29 and a 2.9.
So both of these companies are slightly more elevated in their
valuation than most other quality companies.
But Even so, another thing I'll mention about these companies is
that they trade up ahead of earnings almost every time.
So when I zoom out over the full year, we have a company here
that's up 22% paying dividends every single quarter and growing
their earnings per share and free cash flow per share.
This is exactly the type of investments we want to make.
S&P Global likewise has had a decent year.
It's up 13%, not quite as good as the market this year.
So we see a little bit of underperformance, but when we
back out to the full year, that makes more sense.
It's up 42% on a on your basis. Don't get discouraged by looking
at the stock price trading around and ebbing and flowing
week by week. Look at the overall
fundamentals. These companies are growing
dramatically. So right now I have a $100,000
position in S&P Global. I'm holding every share, not
trimming any. I have a $46,000 position in
Moody's and likewise not selling a single share.
Now, if we go to a company that I am planning on selling
eventually, it's Canadian Pacific.
Don't get me wrong, Canadian Pacific is a great company
qualitatively. It has a dominant Moat.
It has a network effect. It has a network that goes from
Canada all the way to Mexico. They're building bridges,
They're doing lots of investments for the future.
Overall, it's a great company. And so, and no part of this am I
trying to convince you that you need to sell this company if you
hold it, or that it's going to be a company that performs
poorly in the future. I actually think that Canadian
Pacific, although it's been flat over the past year, it's not
going to remain flat forever. This company will buyback
shares, it will pay dividends, it will increase its stock price
overtime as they grow their free cash flow.
The reason that I'm strongly considering selling Canadian
Pacific over the next three months is simply because I
believe I can find better companies, ones that will grow a
little faster, ones that will give me a little bit more upside
in the stock. When I look at My Portfolio and
my ability and stock picking, I notice some strengths and
weaknesses. When we go into the real estate
category, I've done OK there, I've made gains, but the real
estate category has never been my strongest performing segment.
And when I look at industrials, this is another category that
I'm not having the best results. The companies that I've picked
in the industrial category have done OK.
I made a couple $1000 in Union Pacific, but I'm only up $600 in
Canadian Pacific. I've held this company for over
a year and my analysis on these companies can only go so deep.
Where I find myself having the best results are the companies
and industries that are more in my wheelhouse.
I know Costco inside out. I know every aspect of this
company. With Booking Holdings, It's
another type of company that I feel very familiar with, these
large tech companies that are network effect platform
companies. I feel very comfortable doing
analysis in them and so far I've had good gains in these type of
stocks. Large network effect tech
companies have been my specialty for a while.
If I look at my results in companies like big tech, the
ones that I've been emphasizing investments in for the past five
years, these have done exceptionally well.
Buying and holding them at the right time.
I view my performance in them above average.
These are the companies that I feel I know the most in, I can
do the deepest analysis of and have the highest conviction in,
and I've also had by far the best results in these type of
companies. So rather than focusing on
diversification for the sake of diversifying, feeling like I
need to have a holding in an industrial company, I feel like
my performance overall would be better if all of my capital was
located into the type of companies I know the best.
So don't be shocked at all if you see me exit out of this
company over the next three months.
What I'm waiting for is a dip in one of my watchlist companies.
Now, moving on down the week, we get to the most important
earnings report of the week by far, which was Tesla, and they
knocked it out of the park. Elon Musk added $30 billion to
his net worth in a single day as Tesla stock went up over 20%
after earnings. Now, I've said many times that
stocks trade up after earnings for all different reasons.
Sometimes they're justified, sometimes they're not.
This is one of the cases where I believe this upwards move is
justified. Tesla investors have meaningful
reason to be more bullish on the future.
I liked almost everything in this report and I say almost
because there's a couple things you could slightly nitpick.
For example, the revenue growth was a little slow, 7.8%, a
little on the slower side. Most of the companies I hold I'm
trying to get revenue growth above 10%, but Even so, this was
headed in the right direction, so not too bad.
There's a couple metrics that are far more meaningful for
Tesla. For example, the earnings per
share growth. We saw 17% earnings per share
growth. We have free cash flow growth
that also finally headed in the right direction.
This is reverting a downward trend this year.
The free cash flow is up over 200% over the previous year.
If we look at this on a trailing 12 month basis, you can see the
reversal and trend. The free cash flows were headed
down. They hit a bottom over the past
two quarters, and then they're finally spiking back upwards.
Tesla needs to move the free cash flow back up to this $8
billion mark to get the valuation back in the right
place. The cash balance is also
incredible. They have $33 billion in cash,
which is very different than most automotive companies.
Most automotive companies are swamped with debt.
They have high amounts of leverage.
Tesla's unique in the amount of cash they hold.
Gross margins ticked up last quarter.
They went from 17.95%, so roughly 18% up to almost 20%.
So a nice 2% increase quarter over quarter for the gross
margins. That's another check mark for
Tesla to finally have the margins bottom out and head back
up in the right direction. We can see the same thing in the
operating margins. This is one of my biggest
criticisms for this company. Going back a couple years ago,
they had operating margins of 19 percent, 17%.
A lot of this was fueled by tax credits, stimulus checks and
huge growth in China, and it seemed like Tesla had a lot of
headwinds with rising interest rates making financing vehicles
more difficult. The operating margins continue
to decline. You cannot have a stock go up
that has declining operating margins.
I rarely ever see that happen. So an operating margins were
going from 20% down to 5%. Of course, Tesla stock was going
to tread water for years during that time period, but now we see
the trend reversal. I predict that if Tesla can get
operating margins even halfway back up to where they were
around 15 or 16%, they'll surpass the amount of free cash
flow they generated with 20% operating margins.
The reason why is because they're delivering a lot more
vehicles and they have a lot more revenue than they did back
here. So Tesla does not need to have
the same operating margins they had in 2022.
They just need to keep moving most of the way there.
One of the KPI's I think worth tracking for Tesla is the amount
of vehicles they're producing and the amount of vehicles that
are being delivered. Overall, there's not a lot of
growth in the amount of models delivered or produced, but Elon
Musk gave us reason to believe that this is going to improve.
Here's what he said on the earnings call.
I think Paula Piervo or what should they assume for vehicle
sales growth next year? And at the risk of to take a bit
of risk here, I do want to give some some rough estimate, which
is I think 20 to 30% vehicle growth.
Next year, now it gives a disclaimer there's no guarantees
here, but he's predicting 20 to 30% vehicle growth next year.
So even the question over the flat deliveries and production,
we can see that we're projecting growth in the future, which is
another check mark. The last thing I'll point out
about Tesla stock is the energy and storage business.
If we look at the revenue and we just look at that segment alone,
you can see that for a few quarters it looked like it was
tapering off, flattening out, and again, they somehow
reignited growth in this part of the business on a trailing
basis. It's growing 43% year over year.
The energy business is a jewel of Tesla.
It's one of the better parts of the company overall.
This was by far the strongest report that Tesla has given out
over the past three years. And I think this sets the
company up to go in the right direction.
This is something Tesla investors desperately needed.
They needed these metrics moving in the right direction and soon,
and they're getting it. Valuation, of course, is a whole
different concern. Tesla is a highly rated stock.
It trades at a premium valuation, but fundamentally, it
looks very strong right now. Now, very soon after that great
earnings report from Tesla and the stock moving up 20%, the
Wall Street Journal decided to drop a big hit piece on Elon
Musk, the title of which is Elon Musk's secret conversations with
Vladimir Putin. And right there, the Wall Street
Journal knows what they're doing.
They understand media. They know the effect this will
have. The effect this will have is
millions and millions of people will read the headline.
They'll conclude all of these nefarious conclusions from the
headline and they will not read the article.
The Wall Street Journal intentionally makes their
articles very long and detailed. In many cases, they don't
summarize the main points unless it's somewhere on Page 3 or 4 of
the article. Now, you can say that they're
being detailed and thorough with the reporting, but it also makes
it difficult for the majority of people to actually know what are
the key takeaways that went on here.
What I got from this article is one of the more contrived
efforts to attack Elon Musk. We can jump right to the most
provocative parts of the article.
This is really the heart of it. Putin had asked the billionaire
to avoid activating his Starlink satellite Internet service over
Taiwan as a favor to the Chinese leader, Xi Jinping.
This is according to two people that were familiar with it and
briefed by the Wall Street Journal.
And that is the most scandalous, the most provocative portion of
this entire piece. One thing that's missing with
this article is the acknowledgement that they have
no evidence that Elon Musk listened to what he said, that
he made any type of changes because of Putin's request.
There's only the claim that Putin asked this.
There's no evidence that Elon Musk changed anything he's doing
because of Putin's request. In fact, there's a lot of reason
to believe that Elon Musk did nothing different because of
this request, because Taiwan has their own rules over whether or
not Starling can fly over them, and so far, there's no evidence
whatsoever that Elon Musk broke any of those rules.
So from this scary, provocative headline that Elon Musk is doing
something secret with Vladimir Putin, they even encourage this
thought by photoshopping Elon Musk's face halfway with
Vladimir Putin's. We learned that there's no
evidence Elon Musk did anything that Vladimir Putin asked.
There's no evidence he changed his behavior.
The only real claim here that's actually somewhat verified is
that they had a conversation. And obviously with elections
being so close and Elon Musk being such a prominent endorser
of Donald Trump, it's going to lead a lot of people to believe
that part of this is politically motivated.
Right now, the elections are a coin flip.
They could go either way. When things get this close, when
elections are this tense, it seems like a lot of journals and
news outlets, we'll post things with very spicy headlines to try
to make a dent in things. And this is the same way that
the Co founder of Palantir reads this article.
So what's going on, Andrew, is you got to look at the
background right now. Europe is panicking, the Harris
camp is panicking. There's two weeks to the
election and they are throwing stuff at the wall.
And what's happened in the last couple weeks, what's happened is
there's amazing momentum against the Harris team, right?
So you have, you have, you know, tell them not to go into Israel.
They kill the bad guys in Israel.
So they look really, really dumb.
I'm telling him to stay out of Rafa where they got Synoir,
right? You got the Tabata guy who
worked for Mali, who they brought in is clearly seems to
be leaking stuff that you know, her father worked for the
Iranian regime. They're Europe right now, of
course, really angry at must they had to fire Terry Britain,
the commissioner. He used to be a minister of the
French government. People in French government do
not like Elon right now. He just shamed their them just
two days ago came out. They're trying to kill Twitter.
So, so so basically they have all this momentum against them
and they're panicking and they're throwing stuff at the
wall. And, and the last time we talked
about Russia this close to an election, it was the
intelligence community. You're working on a fake
document that Hillary created. They spent three years of asking
him for BS. So it's like you have this
context that you have to look at.
What do you think? Like I mentioned, most people
reading through this are going to view it through a political
lens because of the timing of the article and the lack of
concrete evidence of any type of wrongdoing from Elon Musk.
So we'll see where this article goes.
Maybe they'll dig up more evidence and find actual
wrongdoing and rules violated from Elon Musk, but so far with
this article, to me it seems like a lot to do about nothing.
Now finally we're getting towards the holiday season.
As we get towards the end of the year, Activision Blizzard
typically releases one of their big franchise games.
This time it's the Call of Duty series.
This is one of the more tried and true branded series.
It's going to sell a lot. This is the reason that
Microsoft invested $75 billion into this company was for the
franchise Call of Duty. It's by far their most big and
profitable franchise. Now.
One thing that Microsoft is doing is trying to change the
behavior of its customers. Anytime you try to change the
behavior of customers, that is a difficult challenge.
Being able to pull that off shows a lot of strength and
skill in navigating these type of challenges.
Call of Duty, one of the most successful entertainment
properties ever, became part of Microsoft portfolio and the
Activision deal. The company decided to make its
latest installment of the shooter series called Call of
Duty Black Ops 6, available at launch for streaming or
downloading, loading via Game Pass for 1999 a month.
Now this may not seem again like that big of a deal, but if you
go on to any online gaming forum, if you go to Reddit, if
you go to anywhere where people discuss buying this game, the
consensus is very clear. People say don't buy Call of
Duty Black Ops 6, just sign up for Game Pass.
Why pay $70.00 upfront not knowing if the game is really
great or not when you can try it out for $19.00 a month?
There's going to be millions of people that sign up for Game
Pass simply to try out Call of Duty Black Ops 6 and not pay
that $70.00 upfront. Analysts are trying to figure
out whether or not the strategy will prove successful.
One of them says the big picture vision here is Netflix for video
games, and I think it's a very viable option.
I don't know if it will happen all at once, but Microsoft is in
a good position to do that. Some analysts are very skeptical
and negative on this type of subscription game pass system.
They say the video game business is not suited for an all you can
eat model, at least not at the price that makes sense for
publishers. I disagree with those analysts
and I think that Microsoft is well positioned to pull off this
type of subscription model for AAA video games.
The truth is that gamers are already used to paying for
things on a subscription model. They pay for season passes.
They pay for microtransactions. It's actually becoming more rare
that a video game makes the majority of its money on the
upfront sale. Most people have freemium games
where they download the game for free and they purchase season
passes, skins, and additional in game purchases.
In this case, Microsoft is simply just saying buy this one
pass and you'll have access to a ton of video games on a monthly
basis. There's no guarantee that
Microsoft will be able to pull this off, but they have a very
good chance. That's going to be it for this
episode. Hope you enjoyed, see you in the
next one.