This Earnings Season Changes Everything (Get Ready Now!)

So, if you've checked your portfolio this week and thought, "Why is everything down?" you're not alone, but don't panic yet. Dad, can you explain to everyone what's going on this week? >> It's just mean reversion. You're showing a report from Bespoke that says it all. The more money you made, the more you had to get back. But now earnings are coming out, so everything will come soaring back. >> So, is this just a couple of bad stocks or is something bigger going on across the whole market? >> Well, as we discussed, it's pretty common to try to hit the market just before earnings come out. And what is going on mechanically is our specialists out there, so that would be Citadel, Jane Street, Hudson Valley, Virtu Financial. They love to write call options on the hottest stocks and collect the biggest premiums possible. But they don't want to deliver the stock, they just want to get free money. So, after they write these call options and collect these huge premiums, then they often run a mean reversion algorithm to try to knock them down. And that's a very common. But what's about to happen now is now that earning season's full swing, they got to run for cover cuz there's just going to be too much good news this quarter. You know, earnings this quarter are accelerating over the previous quarter. And although the official estimates for the S&P aren't this high, I'm anticipating 30% earnings growth on the S&P. And of course, my average stock will have over 40% sales growth and well over 100% earnings growth. So, you know, you just can't ruin the party, okay? They're all about to be steamrolled. So, that's why you're seeing a recovery in the market because the good news is unfolding as we speak. >> So, how would I know the difference between a stock that is just cooling off and one that's actually in trouble? >> Well, I look at earnings. And as long as earnings are there, I'm not going to blink. And I guess the the best examples are Super Micro Computer and Sizzle. Now, I've owned these stocks for 2-plus years. Super Micro's been owned for almost 4 years. And these stocks were tracked by short sellers because they went parabolic. And when they go parabolic, the short sellers come out of the woods and attack them. Now, it just so happens the short seller that attacked Supermicro and Sensel just got sentenced to 20 years in jail for basically planning fake stories out there. You have to realize that markets don't think, they react. The market is a man of crowd. So, if there's something in a headline that scares people, it'll go down. I guess the latest example is both Supermicro and Bloom Energy have had a borrow in the credit markets to expand their business. And when that borrowing was announced, both stocks got hit. And that happened to Bloom Energy on Monday, although it's borrowing today, it's bounced right back. And why these companies are borrowing to expand their business and build a lot more of their units is their return equity is so high. It makes more sense to borrow than the issue new stock. So, finance 101 teaches you like to see your return on equity is 20%. And you can borrow at 6%. Well, then you're going to borrow. Now, if your return on equity is 3%, you know, sell some stock, okay? So, there's this formula you do in finance classes, do we borrow with equity or bonds or just get debt from the private credit markets? And increasingly that right now because return on equity is so high, they borrow. And that, of course, fuels even more earnings growth. And the last comment I have is please realize that the P ratios these stocks are coming down cuz they're not going up as much as they're earning. Micron, before it had its turnaround, was at under 5.6 times forecasted earnings. So, this is for one of the most explosive stocks on the market. And I know it's cyclical, but that's too cheap. >> want to go back to Bloom Energy. It was down 33% recently. Is this a buying opportunity or is this a warning sign? >> It's a buying opportunity. There's a one brokerage firm out there that thinks it's fully valued, but you have to realize that the data center expansion is real. Brookfield, which owns a lot of data centers, uses Bloom Energy's fuel cells. So does Oracle, which is building more data centers. And then they keep getting winning big contracts on top of those two big customers. So yeah, the tech industry likes to be green, and it's perceived that a natural gas fuel cell is greener than a natural gas turbine. I think that's a pretty close call, but the bottom line is the Bloom Energy fuel cells are very popular, and they're being ordered by two of the biggest data center outfits out there. So their their business is incredible. The main thing with the Bloom Energy, Super Micro, and all these stocks is how big is your order backlog. From what I can see, this order backlog is 3-plus years going into 2029. So we can't stop the data center boom, no matter what the local opposition is to data centers, or even New York's one-year moratorium on data centers. They're just going to go somewhere else. And it's a big country, and they're very welcome in a lot of counties. >> And we got a lot of really wonderful subscriber questions. A lot of tough ones, so let's get into them. Nvidia is supposed to be the AI king, so why does it feel like it's been left behind lately? >> Well, I think when a stock gets big, it has a physics problem. You know, Apple and Nvidia, the two largest cap stocks out there, they're actually vying for market cap here. The other thing is that covered call option writing is very common. What you see with Nvidia is that it tends to rally before the earnings come out. And I think Nvidia has been exhibiting tremendous growth strength. As has Apple, by the way. You know, we've been talking about Apple on previous episodes that it might have a folding phone coming out. And that would be the probably the biggest blockbuster hit it's ever going to have. These stocks are acting very, very well. But it it and a bit of a physics issue. So just let the earnings come out and let the guidance take it higher. There is a cycle, so we're right now we're in the Vera Rubin cycle. And Jensen Huang has already telegraphed that their earnings are going to be phenomenal next year because that's the full ramp-up of the Vera Rubin the chip. And then they'll have another chip announced in 2027, and then then 2028 they'll have the same thing going forward. So, Nvidia, in my opinion, is a $300 stock by the end of this year and it'll be easily a $500 stock by the end of the decade. I have no intention of selling it. I don't have many companies that have 70% operating margins after taxes. So, this is just incredible what Nvidia is doing. >> While we're talking about stocks, what's your take on EQT right now? >> Here's the dirt on EQT. Their sales are forecast to decline 28.6%. Their earnings is supposed to decline 6.6%. The analysts have cut their estimates on this stock from 62 cents to 42 cents in the last 90 days. However, with that said, it does have a good earnings surprise history, but this stock doesn't have the sales and earnings or positive analyst revisions I demand. So, I would not recommend the stock. >> Now, a bunch of you were asking how will the midterms affect the market? It is coming up, so Dad, what do you expect for that? >> Well, that's a very good question and it gets talked about a lot, especially if you watch Bloomberg. They think it's affecting President Trump's behavior. The truth of the matter is the Senate looks very good. So, we will still have a split government even if the Democrats take the House. And the other thing is all the Trump spending has been front-loaded. All the plans are in the works, so whatever he was planning to do, he did it in the first 2 years and then there might be more spending after that. So, yeah, the Trump agenda is going to continue. But when the government is gridlocked, it's usually good for the economy because I guess the government's not interfering with economy. But, we have a very pro-business government now. It's pretty obvious that they want to promote GDP growth and onshoring. I don't think the midterm elections are that big of a deal. I really don't. And they tend to be a little low-turnout elections, which tend to favor the Republicans a little bit more than the Democrats. But, obviously the Democrats get some candidates that gets everybody all excited. So, we'll see. But, again, no effect to the economy. >> I want to go back to Supermicro. It has had quite a rough year. What's going on there? >> Well, yeah. They They borrowed to expand their production of their water-cooled rack systems, and that rattled a lot of people. But, they have over 100% forecast of sales growth. So, I'm sticking with them. They're one of Nvidia's biggest customers. So, this is a stock that's very bad at PR, okay? One of their co-founders had to resign. He's been charged with uh making things in Taiwan that ended up in China. Uh you know, Nvidia just stopped selling to a a bunch of people that that could be selling to China. Supermicro computers complying with all the regulators and everything. So, the problem seems to be isolated with this one co-founder who, in all candor, is a brilliant engineer, just not good at PR. So, I'm not worried about Supermicro. My friends in the cloud computing business say they make the best water-cooled rack systems, period. So, that's why they're in such strong demand. >> Now, we got a few more questions about strategy, so let's get into them. Would you sell calls against stocks you would buy and hold just to make a little bit of extra income? >> Well, we can do covered call writing. We do it for some clients, okay? But, when you do covered call writing, you don't want it to be exercised. So, you basically write covered calls against boring stocks. That would be like a Procter & Gamble, a Kroger. I could throw in Microsoft, cuz it's kind of boring right now. And all you're trying to do is get extra income on top of your dividend income. Covered call writing makes more sense in a choppy market environment, not a rip-roaring market environment like we're in right now. Now, you know, with over a billion dollars of unrealized capital gains that are at our firm, we really don't want to write call options and have them get exercised. The other thing is the bigger you get, the more you'll compress the option premium. So, individuals, yeah, they can write options. If I start to write options, I will start to compress the premiums. So, it's a very, very unique thing. Uh the specialists uh we referred to earlier, a lot of them are doing the daily options or ultra short-term options. 42% of options expire daily. This is just part of the market making mechanism that goes on, and we're not market makers, and we don't strive for short-term profits like that. I don't want to have unnecessary unrealized gains at this juncture, and I'm a long-term investor, I'm not a trader. >> But for someone who has never done this, how would you explain how to sell a covered call? >> It's not that hard, but I would probably use a service. We had Jonathan on not that long ago. He has an option service. He likes to speculate more than write calls, but you know, obviously you'll learn how to do a call with him. Uh selling a call is conservative cuz you collect a premium. Buying a call is more aggressive cuz you pay a premium. So, the the key is to sell options if you want to be conservative and collect premiums. You're like an insurance company. You're just collecting premiums and hoping you don't have a claim. >> Now, one more question on strategy. What time of day do you recommend buying or selling a stock? >> That's an outstanding question. Most of the action is in the first hour and the last 90 minutes. The rest of the time it's lunchtime in New York. It just depends on the volume, but you know, when I move, we're moving fair amount of volume. So, we will uh normally trade in the first and and last hour. And let unless we're fine-tuning a portfolio and there's good pricing at that time. >> And let's wrap this up for everyone who's watching this and watching their portfolio carefully. What's one thing that you want them to take away? I know that, you know, some of the memory stocks were down. It's a volatile market. Can you just give some guidance to our viewers? >> Well, sure. Well, don't worry about the memory stocks because they have extraordinary pricing power right now for the next 15 months. Yeah, they went down because they went up a lot and they didn't get back all their gains and they're going to have more good earnings and more pricing power for up to five more quarters. So, it it's very simple. Markets usually have to give back a third of their gains. And so, if a stock goes up 100%, don't be surprised if it pulls back 33%. That's normal, okay? What I do is I just stick to the fundamentals and I keep my head down and I don't want to get distracted by all the noise. And there are things out there like leverage ETFs that might cause some volatility with memory stocks. Bloomberg talks a lot about that. And the truth of the matter is that you're going to get rich by buying holding great companies. And obviously, our stocks are led by a lot of billionaires. You know, this is America. You can bash the billionaires or you can invest with them. I've chosen to invest with some of them like, you know, Jensen Huang and Alex Carr. We run with Stock Raider and Right Factor Fundamental Model. We run all these models to find the cream of the crop. And then, no matter what the distractions are, we're going to keep our head down, let the earnings come out and then reassess it. So, my big thing in earning season is, you know, I know I'm going to have surprises and higher guidance. My big thing are the analyst revisions. Are the analysts still revising the estimates higher? You'll notice our average stock has very persistent upward analyst revisions. The analysts control a lot of the institutional money flow on Wall Street. I'm surfing those analyst revisions and I'm I'm ahead of them. And so, yeah, I just keep my head down. But yeah, with that said, we we tell everybody that there are seasonalities. There are air pockets out there. But if you just, you know, focus on the fundamentals, you'll be so much better off. The other thing, in Stock Raider, you can put your portfolio in. Type it in. It's updated every week automatically. We want you to start running your portfolio like it's a sports team. And we only want you to sell good stocks by better stocks. Pretty much all the stocks I sell are good and they're going to go higher, but I'm trying to replace them with something that's going to go even higher with less volatility. So, I'm pretty darn excited. One last thing, it doesn't get this good. It hasn't been this good since 1999. So, please enjoy this year. The earnings are now accelerating from the first quarter to second quarter, third quarter estimates are even higher. You know, obviously we have to get through this earning season and then we'll adjust, but it looks very, very good for the rest of this year. So, yeah, I'm going to be disappointed if I don't make another 30, 40% between now and year end. >> So, bottom line is this isn't a market falling apart, it's a market catching its breath. >> That's an excellent way of putting it. Outstanding. >> So, pullbacks like this are usually where the good opportunities show up, not where they disappear. Dad, thank you so much for breaking this all down and thank you to you all for your wonderful questions. Thank you so much for watching. As always, if you enjoyed this video, please give it a like and subscribe to our channel for new videos every week, but we'll see you this Sunday for a new episode.