2 weeks Ago
Every Friday I do a gameplan look-ahead on "Mad Money." It has to be cursory because I write about 1,200 words — which has to fit into one segment on television — that's the typical structure/stricture. I can't really dally on any particular earnings report because that means I won't get to the end of the week before we have to go to the commercial break.
I know I will run out of time. As members paying dues, you deserve a better, more in-depth analysis of my Charitable Trust's holdings, the portfolio we use for the CNBC Investing Club. So, given this is one of four weeks that is the biggest of the year, let's go deeper with this 2,700-plus word dispatch.
Out of the 14 total Club companies reporting this week, I want to examine Tuesday evening, when Alphabet and Advanced Micro Devices report; Wednesday, which has Eli Lilly in the morning and Meta Platforms and Microsoft in the evening; and then the MacDaddy that is Thursday evening with Amazon and Apple . I can't help but add the government's October employment number on Friday morning — the prism through which all stocks must be measured. Let me start with the labor market, and by extension bond yields, because it is worth discussing the macro stakes before the micro determinants.
I want to give you the context of the week and the alternative construct of the earnings reality, and how I am reconciling the two. Right now, the entire money-management complex is gripped by the recently rising 10-year Treasury yield , which finished Friday trading around 4.24%.
This Friday's reading on nonfarm payrolls, the unemployment rate, and wage inflation, among other key metrics, could influence the direction of yields. There are tremendous fears that they will keep going higher. Why is the stock market living in fear of these numbers? Why does this interest minutiae have the entire stock market trembling? It shouldn't.
And, if we believe in it, then we will get "it" — meaning the ability to make money in stocks — very wrong. Somehow, we, meaning the collective hedge-fund-algo-journalist complex, have, once again, created bizarre endless judgment days about the Federal Reserve and, worse, we think it matters to the valuation of stocks. Each new 10-year benchmark higher is a badge of the Fed's failure as if, somehow these yields are going higher as revenge against a failed central bank policy of giving us a 50-basis-point interest rate cut to kick off its easing cycle rather than a more traditional 25-basis-point move.
These musings are what I call the "weeds of thought." We don't want to get caught up in the weeds because the weeds create a thicket in our minds that we can't get through. We can't both accept the thicket and even try to pick stocks.
Let me mow the thicket by analogy. For many years, we have been gripped by the entirely false, demonstrably false, acceptance that if the yield curve is inverted, we are going to have a recession. That has been the dogma.
It turned out to be an ENTIRELY FALSE CONSTRUCT. That's right, it was totally wrong. The inverted yield curve —in which short-duration Treasury yields go higher than longer-term ones — meant absolutely nothing, nothing at all, to the direction of stocks.
It's like the judgment made by cartographers thought to be entirely competent some 500 years ago that the world was flat. Explorers subsequently disproved that judgment with a vengeance, and the world-is-flat theory was blasted to smithereens. We immediately ceased to rely on what turned out to be the map musing of charlatans.
The world-is-flat charlatans this time around have been similarly discredited, but it meant nothing to the journalist part of the complex who will rely on the charlatans as long as they are employed. Or, to put it another way, the incompetent cartographers of Wall Street are, somehow, still in charge of the narrative. They are still spewing gas, this time not about the inverted yield curve but how a 4.
20% to 4.5% journey on the 10-year Treasury yield is somehow a referendum of the Fed and, therefore a judgment that stocks should go lower because the Fed is being discredited by every basis point. As is so often the case, the prediction of macro is rendered as worthless as the prediction that the world is flat.
We need to stop the clueless cartographers of this generation from renting space in our brains. It throws us off what really matters: the ability for some companies to be extremely profitable in any environment, including one that is part of a 10-year yield journey from 4.20% to 4.
5% or even 4.75% for that matter. For all we know, the yield curve may simply be going through the birthing of an un-inverted yield curve.
A regular Treasury curve would have a 10-year at 5% and a 2-year at 3%, with a slope in between. No matter, none of this is germane to most of the stocks in our portfolio. We are not loaded up in cyclicals that face a tougher time than we thought given how strong employment is.
Even then, superior execution by the CEOs of some of the cyclicals can triumph over the declining environment even as others — think Honeywell — fail to do so. Once we recognize the unimportance of the prognosticators and their worthless judgments about a Fed that is vastly superior Fed to what they think, then we are free of their mental handcuffs. So, am I dismissing them entirely? Not at all.
I am simply dismissing their ability to have a lasting impact on the pricing of our stocks. However, they require some dancing: we have to perform a sort of earnings two-step, acknowledging their initial distorted impact and then taking advantage of the discounts they present. The two-step is what I alluded to in truncated form on Friday's gameplan.
The 10-year Treasury cartographers hold sway and impact not the companies we are talking about but the pricing of the stocks because of the pathetic linkage of the S & P futures and the stocks themselves. This paradox, which I address repeatedly on X, nee Twitter, and on the 9 a.m.
ET hour of CNBC's "Squawk on the Street" when Carl Quintanilla and I banter, drives me batty. The repeated decline in the S & P futures, the premarket trading before the Wall Street open at 9:30 a.m.
ET, is an extrapolation of the false cartographers. It doesn't matter that an Alphabet reports a tremendous quarter; if the S & P futures are selling off the morning after, and they always are, then you get a stock that is forced lower. Once you understand the pernicious incompetence of the traders you can make a lot of money.
If you succumb to their musings your eye falls from the prize. With that understanding let's talk about the earnings while acknowledging the two-step, starting with Tuesday evening's Alphabet report. The Google parent is so difficult to game as you know from previous sales.
Jeff Marks, our director of portfolio analysis for the Club, and I struggle mightily about what to do. Why is it so difficult? Because Alphabet management doesn't seem to understand our needs. We know what matters: search and its cost, including Gemini artificial intelligence, YouTube, and the so-called Other Bets.
Let's pick these apart so you know why we have so much angst about the name. GOOGL YTD mountain Alphabet YTD Search used to be so simple. You paid Alphabet a toll for being in the search queue.
Alphabet rebated you in the form of how you monetized the customers who came to your site when they Googled it. We still have that relationship, but it isn't as lucrative as it once was. Now there is so much competition to Google search that we reward Alphabet with a much lower price-to-earnings multiple.
Worse, Google's Gemini AI, despite Alphabet's protestations, diminishes the value of search. Gemini, itself, is work in progress. Alphabet management is trying to have its cake and eat it too by having a superior chatbot and an easy on-ramp to search.
We don't know if it is working, which is another reason why the darned stock is so hard to game. The market tends to reward what cannot be gamed with a lower P/E. But Alphabet seems to know this and has created one of the most terrific vehicles of all time: YouTube, which allows them to monetize product that they don't even make.
Some of that is viewer-created kind of like longer form TikTok and some of it is from the ill-advised linear TV execs who give their wares to Alphabet in return for something that allows a virtual Donner Party of cannibalization. In a total demonstration of dominance, Google buys the NFL package and then doesn't even monetize it well. Much of the package is devoured by the 55 million people who play fantasy and are addicted to the fourth quarter of totally meaningless games.
But YouTube execs are clueless to their own audience and don't know its value. The company is so lucrative, though, that management doesn't even seem to care. Make no mistake about it, though, YouTube is the true value of Alphabet.
What about Other Bets? With the emergence of Waymo, at last, this suboptimal rubric has overstayed its welcome. There is no "other bet" anymore just a three-team parlay: search, YouTube and Waymo. Waymo was ridiculed by Tesla CEO Elon Musk this week, alluding to ugly cars with weird Lidar helmets and a paltry sum of rides per week —all true.
He expects to blow Waymo away in California next year with his robotaxis. Given Musk's "die is cast" in favor of putting former president Donald Trump back in the White House, though, I say good luck. Waymo is taking in money, seeking a valuation, something wholly unnecessary when it comes to funding but vital if it is going to come public with an expected worth in excess of $100 billion, a big sum even for Alphabet.
With Other Bets now becoming part of a three-team parlay, we have the two-part judgment: what the stock will trade at because of the cartographers and then what it will trade at the next day. I am inclined to like it ahead of the quarter but not enough to recommend it because I think it will report a number good enough but not great enough to move the needle initially. You will get a better opportunity to buy it, especially if we start fretting that Vice President Kamala Harris as president would keep the Justice Department's anti-business antitrust team in place.
So don't buy ahead but realize that it might be worth buying the next day because I think that a Google with a successful Waymo is worth owning at the right price. AMD YTD mountain Advanced Micro Devices YTD Advanced Micro Devices? Oh, I like this one both before and after because its stock has done nothing even as it is encroaching on Nvidia 's generative AI dominance with its own more rudimentary chips while winning the battle against a self-hobbled Intel when it comes to personal computers and servers. We know right now that artificial intelligence PCs are getting a lukewarm reception.
That's a big flaw in the story but is that why AMD is trapped in the $150s. I think it breaks out, which is why we bought some more last week ahead of earnings. LLY YTD mountain Eli Lilly YTD Eli Lilly is tough because it is doing so much better than the other drug stocks.
How much can you let it run ahead of Merck or Pfizer ? Our judgment is a lot, enough to have sold some last month but let the rest ride. Why bother to let it ride? We have seen some, but by no means all, the uses of its combo GLP-1 drugs Mounjaro for diabetes and Zepbound for weight loss. They both share the same active ingredient, tirzepatide.
These treatments are also being tested for conditions from hypertension, alcohol-related liver damage, and even dementia. As we get one after another, we will get more reimbursement from health insurers. As we get that reimbursement, we will see more and more number bumps.
We will also see more and more construction of plants, which means a higher and higher moat. This one could be like Intel in the 1990s, a stock that had one of the most sainted trajectories, rivaled and now exceeded by that of Club stock Nvidia. Buy it ahead? Can't, two-step forbids it.
Wait for our analysis. META YTD mountain Meta Platforms YTD Meta Platforms has run big ahead of the quarter. However, it still has a lower P/E multiple than the other Tech Titans.
I like that. When we were growing up in Philly, we had stations 3, 6, and 10, which had a hammerlock on television ad dollars. The current 3, 6, 10 equivalent are Amazon, Google, and Meta.
In commentary last quarter, Meta CEO Mark Zuckerberg dropped some seeming hyperbole about how, given his superior AI, he could target anyone you needed targeting and not waste dollars on the unneeded. It's not hyperbole. There was always one of the three stations, 3, 6 or 10 that was most dominant.
Right now, Meta is the most dominant. And, there's plenty of upside as Mark is working closely with Nvidia CEO Jensen Huang to implement the most graphics processing units (GPUs) for Meta AI, rivaled only by Amazon and Tesla. As Meta AI gets better and better, Meta's dominance is being sealed.
I really like it. MSFT YTD mountain Microsoft YTD Microsoft is tough and, as you know from our videos, I am plenty worried about the Copilot artificial intelligence assistant. Is it a work-in-progress which, in that case, I like the stock because I love the rest of the portfolio.
Or does Microsoft think Copilot is currently outstanding and self-serving competitors like Salesforce CEO Marc Benioff, who weaponizes Gartner's industry judgments, are simply wrong. It's crucial, so crucial that not only can't you buy it ahead for the quarter but you might have to sell it after unless Azure picks up its pace. Anything's possible with this sainted stock but I admit to trepidation.
AMZN YTD mountain Amazon YTD Let's get to the two toughest of the week, Amazon and Apple. Amazon came into the last quarter smoking hot. There was a recognition that the Amazon Web Services (AWS) cloud had picked up its pace and was going to surprise mightily to the upside and it did.
But what few realized is that retail would be weak. It was. The company compounded things even more by projecting that this quarter would have weak numbers because of the attempted assassination of Trump and the Olympics.
Egads! No wonder it traded down to $161 before rebounding all the way back. This quarter's report might be de-risked because of that, which makes me like Amazon and you want to like it even more. There are five fewer shopping days between Thanksgiving and Christmas this year and that definitely cuts in favor of Amazon.
So my judgment? Let the two-step prevail as we are so sensitive to Friday's jobs number. Remember, in reality it doesn't mean anything to Amazon so wait for the flat-earth crowd to bring it down and then buy. Could be great.
AAPL YTD mountain Apple YTD I saved the toughest for last: Apple. As befitting the World Series, we have two strikes going in, a weak iPhone 16 and a high multiple. Both assure a negative reaction including some price target reductions and downgrades.
I like that setup because I want an elongated 16 cycle, we have always wished for one and now we have it and we curse it? How silly. Plus, I am betting that the service revenue stream begins to explain the high multiple along with the mentally neglected cash position. Both cut to buying right into a too-strong employment number's ugly Friday opening.
Could be a tremendous opportunity and a justification, again, of my "own it, don't trade it" default strategy, which as always, I have to say has been so right that its only matched by the vociferous Apple-deniers who can't stand their lack of access to Apple which translates into haughtiness but is in reality, a kind of Warren Buffett-like ethos if not theology. Bottom line — the bad news about all of this? Man is it hard. The good news? Post earnings we no longer have to employ foresight.
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