3 Stocks You'll Wish You Bought. 2 You'll Regret Owning.

While many investors are still chasing SpaceX, there are many other stocks that are set up much better that you should be looking at right now. Joining us today are Rob Spivey and Joel Litman with Alimemetry Research who are going to give us an accounting perspective on not only SpaceX and what this valuation could actually be, but they're also going to be looking at three stocks to buy and two to avoid right now that all have really strong fundamentals and a much better growth story than the SpaceX story we're seeing right now. So, this is a lot to cover in a video. So, let's just jump out right away, Rob, by talking a little bit about uh the SpaceX story that we're seeing right now and how much the market is chasing this massive valuation. >> Yeah, I mean, it's funny. It feels like when you look at at the end of the day, everybody either is saying this company is really only worth hundred billion or it's actually worth $10 trillion. But this is what's so cool when we actually can use the real accounting data. And from the S1, we could dig in using uniform accounting and really get a good understanding on what each of these businesses look like. And the really important first thing to understand is SpaceX is actually a profitable business when you look at it on a uniform accounting basis. This is a company that is throwing off real cash flow right now, even with XAI and everything else. And so the way that we look at it and the way that we think the right way to look at it if you want to understand what the b this business is worth is not to try to value SpaceX as a whole. It's to look at each of these three segments and jump in and really understand how good of a business is it and what could it realistically be worth once we see the real data. And so when you talk about it of of course the the the base of this business is a business it's been doing ever since it was founded launch or as SpaceX calls it space. that business is actually a really good business and it makes sense on a uniform accounting return on assets this is about a 12% return on asset business which is which is US corporate average but for an asset intensive business the reason why is because they have a real economic mode here right it's not just about first mover advantage it's about the fact that the technology to be able to do what they do in terms of putting these rockets into space is really hard but when you look at this business this isn't a massive growth business you know when you think about space and the growth in space is not about rocket launches that are going to grow massively. It's about all the stuff that's going to go in space. That's the space economy. And so when you look at this, most consensus is probably this business in terms of the aggregate growth. And I mean they are the lion share of launch. They have 127 um launches that they did in the last year and a half. They are more than 80% market share of US commercial. Probably this is like a double or triple in terms of where in terms of how much it can grow. That means this return on assets of 12% maybe goes to 15 with that growth. You're talking about a business here $120 billion value in terms of what this is probably worth. And that's probably a really good number. Then the next part of the business is Starlink. And right when you want to talk about Starlink, which they call connectivity in terms of what SpaceX calls it, this is a insanely good business. When we look at a uniform accounting business already today, this is a company with 11 billion dollar in um revenue that's generating a 30% return on assets. That's 3x corporate average in terms of what it is. And when you look at the opportunity, yes, I know what Elon said. This is a one $ 1.5 trillion TAM. Look, total uh global telecom is not the TAM for Starlink because in the developed world, of course, you're not going to be able to disrupt all of the legacy providers in cities in in towns where they have competitive pricing for Comcast, AT&T, Verizon, all of them have competitive options. Same in Europe. And in the developing world, just Starling doesn't make sense from a price perspective. But you don't need a $ 1.5 trillion TAM for this business to be really compelling. probably the more realistic tan for this business is about a hundred billion dollars which means 10x from where they are here. If they get there and return on assets get to what other satellite companies have gotten to like for instance uh Sirius XM that is a $600 billion business with a 60% return on asset amazing profitability which SpaceX is already getting to in terms of the connectivity business. But then the debate part of all this really comes to XAI and XAI that business of course it's hemorrhaging money currently. But two really important things happened in the last 6 months in the last two months that help you understand the path of where you could be for where we're going for potentially XAI which was the $1.2 2 trillion I mean billion dollar a month deal with Anthropic and the $920 million a month deal with Google with Alphabet in terms of selling capacity when if SpaceX can take the XAI business and really turn it into the hyperscaler's best partner for scaling need for compute right now and charge a premium price because of it. This business could be a 15% return on asset business. Or even if you squint, maybe it could actually be a 30% ROA business, which is a company that would be worth 600 to 700 billion. So you put all that together, 600 plus 600 plus 1.2. It's easy for us to get to $1.3 trillion to $ 1.5 trillion, which already says maybe things aren't as crazy as people think they are. And that's what we think is so interesting, Bridget, just to start the story. Let me let me just give the quick back of the envelope of what the bullcase for investors is, right? XAI could be easily easily this is this is reasonably in the next several years producing a 100 gawatts of AI compute power and that doesn't have to come from space. It could come from land. A 100 gawatts of AI compute power is worth about 10 billion per gigawatt in market cap. That's what you could see already. So right there XAI is worth a trillion dollars. Now it isn't right now because it's losing money, right? But it's not XAI. It's a conversion of XAI to becoming an ecosystem for artificial intelligence as opposed to being one of the competing products. The second, it's not that hard to get to. Again, this is a crazy bull case, but where someone says, you know, maybe it's uh if they get a piece of all global telecom, a piece of it, could they do 30 billion in net income? 30 billion income times, I don't know, a 30 times multiple, and you're pretty close to a trillion dollars there. Throw in the rocket business. It's not hard to get to something like a 2.5 trillion. It really isn't. Now, do I think I'm buying SpaceX at this price? No, because I want 3 to one upside and I could see as much downside to a 1.3 trillion valuation as I could upside to a 3 trillion. But in the realm of probability on a stock that's trading like an option with that kind of volatility, this is not something I'd ever short. But I think there's better buy ideas out there than just jumping into this. >> Yeah. So, neither of you are chasing SpaceX right now, but you do believe in the valuation that we are hearing about this company. So, the hype has some solid evidence, some solid accounting behind it to to back up some of the hype that we're seeing right now. But your recommendation is don't chase SpaceX where it is right now. Wait and see uh what the future holds for this company. But there are three other companies you say are worth chasing right now. And we are going to get to that list in just a minute. You also have two to avoid. And I'm most excited to get to that one because one of my personal favorite companies is on that don't buy list. So, we're going to get to that too later on in the video. Joel, one more question for you, and that is even though some investors might not individually be chasing SpaceX, uh it is part of that index story, at least for a few indexes out there, uh what's your take on SpaceX, you know, IPOing at such a huge valuation and getting into all of the indexes where um investors will have exposure through it somewhere just from those larger index investments. Well, they I mean it does create demand because the indexes do tell the funds invest in the index that they have to buy. U but the big one really is S&P 500 because S&P 500 is market cap weighted and given a market cap like this it seems like it's missing. That said, how long did it take Tesla to get from IPO to into the S&P 500? A decade. Meta, which was grossly profitable and really crushing it when it IPOed it, I mean, from a profitability standpoint, it still took 19 months before it got in. So, while the other indexes like NASDAQ or whatever, which people expect volatility in the NASDAQ, something that's more stable like the S&P, which really does create a massive demand at a market cap weighted level for a company that has a smaller float, meaning that would drive that alone would drive valuations up for SpaceX. But I don't see that happening anytime soon. Maybe in a year and a half like Meta and maybe a little bit longer like Tesla. >> And just to add to that, Bridget, really quick, even if you are an owner of the NASDAQ or the Russell ETFs where it is getting added, >> do not panic and think that it's getting added at a $2 trillion valuation. This is Joel mentioned this briefly everybody, but it those are actually they're adding it relative to its float. And if its float is 75 billion or hundred billion dollars, that's not small. But I mean, that is comfortably comfortably sub 1% one a half a percent of either of those in terms of what's being added. So don't think that this is totally blowing up your entire investment. You you don't you don't have to realize the gains that you have in your NASDAQ or your Russell 2000 or a Russell 1000, I should say, or 3000 ETF because you're worried about SpaceX. it's not going to be that kind of an impact on your on your investment. >> All right. Well, you certainly made a really good case for SpaceX and whether or not investors should be looking at this one right now. But one thing that you talked about uh in this story is the value of the AI market. And this is something that I know both of you and your team at Alimemetry Research have really dove into. And that's where the real money lies in this AI story right now. You have a special report out right now on dark energy. This is the real area where the the money is flowing in this story. Uh it shows up in the accounting for sure and you have a list of stocks to look at with that. So if you want to get this special report, we have a special offer just for our market viewers today. You can scan the QR code or click the link right in the description to get that dark energy report from Rob and Joel and their team at Ultimatry Research. But guys, it is time to get to the stock list. I know this is the part that most people are excited about. And let's look at that first name that you are looking at as a really strong growth story, even stronger than that SpaceX story that investors should be looking at right now. >> Yeah. And the first one is ASML. And so ASML for those of you who don't know it is one of the most important companies. When you think Nvidia and Taiwan Semiconductor in terms of the AI boom, you should think ASML also because they make the equipment that TSMC needs to be able to make these incredibly complex chips that they're making for um for uh both Nvidia, for any of the memory providers, everyone else. You need these these incredibly complex equipment. And the wild thing about this equipment, it's literally the only people who know how to make it are in are in Europe in this special little pod where ASML builds these things. And these machines are literally the size of a small room in terms of how big they are. But they do this incredibly complex etching that goes on and everything that needs to be able to make these complex chips. And ASML is is incredibly interesting because when you look at it on a uniform accounting basis, this company's return on assets is one and a halfx what people think the profitability of this business is. So it's not a 15% return on asset business. It's a 22% return on asset business. And because of how in demand these chips are that they help make, they are seeing massive ramp in terms of how many of these pieces of equipment they have to build and then have to service afterwards. And if you talk about the SpaceX story in terms of what they're doing with XAI, whether or not those data centers are on land or in space, we need a ton of the highest value, most complex chips. And that is what ASML helps them supply. And nobody fully understands just how much that means. ASML has a ton of upside right now. >> Now, this is a really interesting one because it has already had a huge growth story for sure. It's up 150% on the year, but compared to some of the other names in the AI story, that's not as much growth as some of these other names have seen, the explosive growth that we've seen. Um, and looking at what analysts are saying about ASML 2 is there's a trend of reiterating higher and higher price targets. So, even if you're getting in at where it is right now, there's some some big anticipations for this company to grow. What does all of that mean for investors? Yeah, I mean this is the, you know, it's the this powerful thing in terms of ASML. The whole entire beat and raise trend that they've had is a in is a incredible amplifying thing that's happening because they are in the process of significantly ramping production capacity. Um, and they are really moving more into the higher value forms of the equipment that they make. Right? right? They have they have equipment that they make that's kind of the lower end of it and then they've got the higherend versions of this equipment and that's where they're going a lot more and that is a higher margin part of their business and that's the other important thing that's going on is the mix shift that's happening here is actually helping them continue to surprise the market higher and is why we think that return on assets could even rise from here from already these robust levels as we see those beaten raises. >> Yeah. One thing I know that in the the year or so I've been talking to both of you, you talk about a lot of moes and from the way you describe this company, it feels like it has a very strong moat for a very in- demand sector. Does that sound right? Yeah, I mean you look there's funny there's a story about uh a Chinese semiconductor manufacturer bought ASML's equipment and then effectively they went and they took it all apart because they were trying to figure out how to rebuild the equipment in terms of this incredibly complex optics based, laser based and all the other things that go into it in terms of the etching. And they literally had to call their ASML rep to come back and basically be like, "Uh, can you put this back together cuz we can't figure out what we did?" And literally, these are people who do this for a living who are trying to reverse engineer it and we're like, "We can." If that doesn't tell you how strong the mode is, I don't know what does. >> Yes, that absolutely shows up in the excitement that we're seeing about this stock. Again, having that unique moat uh that is in such a high demand industry is a really strong sign for growth in the future for this company. Uh, one thing we hear from investors all the time who watch our show is they don't love to hear about stocks that have such high price tags. So, when you look at a stock that's trading uh, right around $2,000 a share, what is your what's your advice for the average retail investor who might be looking at this cost of entry into a stock like this? >> At the end of the day, the it's it's the price relative to the earnings. So, if the stock is $2,000, but the company's producing $200 in earnings that are doubling every 5 years, that's a very inexpensive stock. If a company is only $50 a share, but it's only producing 50 cents of earnings, that's a really expensive stock. So, at the end of the day, you still want to look at price to earnings, but you need to look at uniform earnings. The biggest thing that we've seen is gap accounting. The as reported earnings by Wall Street that you see in Bloomberg and everywhere is wrong. It's wrong in gigantic ways. And there's lots of companies that are showing negative gap accounting earnings that are actually generating a lot of real cash flow. And there's companies that show big earnings from a gap rewarding standpoint that don't. So the price is the price. I'm not arguing that the price is wrong. If it's two grand, it's two grand. But you have to look at the real earnings, the true blue as we call it when we use these blue bars when we show in our charts, these true blue earnings. And that makes all the difference in whether or not you want to buy that company. And we understand too, I mean the perspective of look, obviously a $2,000 price tag. If you've got a $10,000 portfolio, that means that's 20% of your portfolio. And we wouldn't recommend putting 20% of your portfolio in any individual stock. This is, I think, as more and more companies have expressed a complete disinterest in doing stock splits. Um, this is where having opportunities in places like Robin Hood where you can buy fractional shares becomes a relevant thing to think about. The stock price is not what matters. the valuation relative to it is. And if that's your only thing that's preventing you from do it, go someplace where you can buy fractional shares. You will not be disappointed owning um ASML because of all the big trends that they've got going on. >> Higher institutionallyowned companies get higher valuations than companies that have a lot of retail investors that are popping in, popping out. And so you find some of the companies purposely say, why not have a $3,000 stock price? because it means we'll have institutional investors who are stronger hands and we won't have the retail investors coming in and coming out so easily just on a little bit of bad news. So I think there's a trend towards higher priced bad for retail but actually institutional investors do tend to have stronger hands and don't jump at the first sign of trouble. And I think a lot of companies I spent a lot of time with CEOs and CFOs and they're saying I'd kind of like to have more institutional investors in retail anyway. Um and so that's one way of doing it. right or wrong, it's one way companies are doing that. >> Such an interesting conversation. I feel like we could go on this tangent for a while, but we have four more stocks to cover in this video. So, let's get to that next stock on your buy list, guys. >> Yep. That next company is Northrup Grumman. And I know you're like, "What?" Well, you may not realize, but this defense company, one quarter of their business is space. And actually, a little bit more than one quarter of their profitability is space. Um, and when you look at it, the important thing that's happening with SpaceX is more than anything else, it is catalyzing the space economy. Um, and so when they push more stuff into space, that creates a a a gravity to it of pulling more people of wanting to do more stuff in space. And Northrup, you might not think of them as a missile as a launch company. Missile company, maybe rocket company, not, but I mean, but they are. They actually had two launches in the last year and change that they did in terms of rockets going into space. They make satellites. They make a whole lot of other stuff that's really important for space. And as we see the space economy be catalyzed and accelerate. They are going to be a big winner in that because of the fact that they are one of the people who you can depend on who knows the complexities and the challenges of going to space. And so we think that you're going to see more on the commercial side and more on the defense side as we think about this for space. And that's on top of the fact that North benefits from a big way outside of this space world um in terms of what they actually do from a defense industry perspective that has a big amount of growth right now because of how our budgets are increasing in the United States for defense and also because of all the replenishment that we need for all of the high-end kit that we used in the Iranian conflict that we need to replenish that they're going to benefit. And so you put all that together and that just highlights just how much of a tailwind that Northrep has. And the last thing I'll highlight and this is where our uniform accounting comes into play. If you look at it on an as reported basis, it looks like north of Grumman is barely cost of capital 5 to 6% return on asset business. When we use uniform accounting, what we can see is this company's profitability is 2x better than that. And as they get all these big tailwinds we're talking about space, which is very profitable to them and otherwise that ROA is likely to lift and the market's sleeping on that potential. >> Yeah. One thing to talk about, you you mentioned two huge catalysts, which is the the amount of money the US government is spending on defense right now. That should be a big boon for Northup. And then the space economy, that could be also very helpful for this company. And yet, look at the stock price, especially compared to the last company we just talked about. This one is only up 5% on the year. It's down roughly 25% in the last three months. So, the stock chart is not looking great on this one. Why do you think that is? >> Yeah. And I mean the overhang there is just I mean fundamentally there's a lot of uncertainty now in terms of where US defense budgets are going. Um when you think of where North is exposed right their big areas of exposure are right missiles radar um rockets in terms of space all these areas they have some exposure to um to boats also because of the radar systems that they put on boats. Um, and there's been a lot of where is the US government going to spend its money if we have all the if we have a new conflict going on in terms of Iran and everything else. Is it going to be the places that they've said they're going to spend it on which are the long-term goals of space and a blue water navy that expands? Maybe they don't. And I think that's part of the spook that the market has had. And quite frankly, that Northup really had had people excited about the narrative for it when Trump came into office. And there was some cooling going on here. But when you look at it at the end of the day, the places that they're exposed are one, the places that I said, as we said, we need to see replenishment. Two, the places that this administration has specifically said they're focused on, bluewater Navy missiles space and that is the heart of their business. And so, while they've had some pullback because of that uncertainty in terms of where budgets are going, the fact is budgets are going up, and it's going up in the places that they benefit. We already had this conversation about look at the earnings, look at the sales, how much a company is actually making when you're looking to buy a stock. And I want to compare what's going on here versus ASML. We just talked about just looking at their PE ratios. If that's a metric that that either of you care about, ASML that we were just looking at, that has a PE of about 68, whereas this stock's PE is closer to around 17. Thoughts on those data points? Well, just really quickly, right to your point, when we look at on a uniform account basis, um, ASML's uniform PE is actually lower than that 60 plus times as reported PE. It's actually around 40 to 45 times, which still feels really, really high. But when you think about pees, what's so important about pees is it's pees relative to growth, Joel, and I know that you'll have an opinion on this. Um, but it's pees relative to growth. And ASML when you look at the potential earnings growth that they have, this is a company that is set up for comfortably 20 plus% earnings growth going forward and that 45 times PE is not unreasonable there from ASML. >> Yeah, the PEG ratio is a PE to the earnings growth rate. And so if the price is 20 and the real earnings, which is important, the the numbers that were getting quoted in Bloomberg, whatever, completely wrong, they're just garbage numbers because they haven't cleaned up the uniform accounting. No investor worth their salt would ever look at a PE where the E was calculated on GAAP accounting the way the SEC requires. They just wouldn't. But that said, sometimes the PE on a uniform basis is the same as whatever. But when you look think of a PA, theoretically, if a company has a 20 time $20 price with a dollar of earnings, that's 20 times multiple. But wouldn't you spend more on a company if that dollar of earnings was growing by 50% a year than a company that had a dollar of earnings that was flat and is never going to grow? like I don't know a paper company or basic chemicals company. So what you tend to see is the pees will be higher the PE today will be higher because it's pricing in the growth at earnings and kind of you have to kind of think as a Ford P and say well if earnings is going to be twice as high three years from now then a P of 40 today is really just a P of 20 and only have to wait two years to get there. That's a quite a reasonable valuation. All right. The other thing I want to mention about this uniform stuff, when Buffett, just to say, when Buffett started buying Amazon in 2018, people said he's crazy. He's lost his mind because Amazon had a PE of 90. That's the reported PE. In actuality, in uniform accounting, the PE was closer to 30 or even like 28. And Buffett was up 60% on Amazon, right, in the course of a couple years. So, he hadn't lost it. He was still on on Amazon. And and I just I love looking at pees, but the E has to be calculated correctly and it's not the way that you see in most databases unfortunately. >> Uh but but what do you think about the the PE the true PE for NorthUR compared to ASML? Do we see the same kind of expectation for growth here or do you think that that's something that the market is missing? >> Sure. Yeah. And so for Northrup, their uniform PE is around 26 times. Now market average right now is 20 times in terms of where it is right now which we can have a whole another conversation someday Bridget about why a 20 times PE for the growth in this market is wild but for Northrup >> wildly wildly cheap exactly but for Northup with a 26 times uniform PE what that basically says at the end of the day is the market's pricing in call it around 5% plus or minus earnings growth a year for this business is kind of what the market's paying for and when we think about all the things that we talked right? Going from potentially a a1 trillion to a $ 1.5 trillion US defense budget replenishment in terms of all that equipment stuff. That's not the kind of growth rate that we're going to see from North. We're going to see much stronger. And so with that 26 times P, could we see that go up? Certainly. And the other thing that we're going to see is we're more importantly going to see as North delivers that earnings growth, we don't actually need a lot of PE expansion if North's going to have healthy earnings growth to see upside. Do we think it's going to get to a 45 times PE? Absolutely not. This is not that kind of growth story. But we don't need a lot of PE multiple expansion when we've got the earnings growth potential that we're seeing for Northrup to see a lot of upside for the business, which again is why we think it's so interesting. >> Another good conversation on some fundamentals and investing too. Thank you guys for sprinkling in some knowledge too through this conversation. Let's get on to the third company on the list and this is one I think we had on the show in the last couple of weeks. It seems to be a really popular growth story in the market. Well, Bridget, it's incredibly popular because it's about the Jersey Boys. I don't know if you knew that. Now, the Jersey Boys is not the musical that I'm talking about. Jersey Boys is the nickname that was given to those giant turbines that GE was making in New Jersey that are like big gigantic turbines that can create three 400 megawatts of power. I mean, you can power small, you can power neighborhoods, you can power multiple giant factories, maybe half of Boston with some of these with just a couple of Jersey boys. I mean these are big big machines right and so these Jersey boys is what they're called in the industry are the bottleneck and we love investing in bottlenecks because when you look at the entire need for AI and how the US has to win the AI race has to win the AI race whoever wins AI race is going to dominate the planet it is right so the US needs to look at that whole system we don't have an issue in chips with Nvidia and AMD and even Intel coming around and others we don't have an issue in getting bright people and programmers, right, to get and developers and engineers. The bottleneck for AI compute is electricity. A data center can be put up in 15 months. Right now, to get a Jersey boy is a fiveyear plus backlog. They are out of stock. They have sold everyone they could possibly make and they're ramping up their production by double and still they're selling out every single one. As soon as they say, "All right, we can probably make a couple more than we thought." Boom. and they sell it immediately and you're talking 5 years down the road. That means they get premium pricing. That can means they can charge whatever they want. And this electricity race, which is what's necessary to win the AI race, is going to need electricity levels that are monumental in terms of what the US already even has. Meaning, you're talking about increasing capacity by 20, 30, 40% of total electricity in the US. And that electricity will be priced at market prices. But where's the bottleneck for creating the electricity? The turbines. And for that reason, we love GE Vernova. >> Yeah, this is a definitely a stock that has a huge growth story uh behind it. That bottleneck you talked about is very very real. And this one until the last couple of weeks was on a downtrend and I think that's when we why it showed up on this show a few times in the last month is because there was that growth case story, that bottleneck story and yet we saw GE stock going down and then last week we saw a big spike. It was up about 20% in a week. What's behind some of those those short-term moves in this stock? >> Well, any company when you know the the look, you invest in a paper company or you invest in an airline and because everyone knows how bad profitability those those firms tend to be, they don't have a lot of volatility in the stock. The more you start saying could this company produce triple the amount of uh turbines, could they produce quadruple 10 years from now? and you start going out further and having even bigger and more optimistic goals for the company, you start getting wider ranges of a little blip here and people say, "Oh, I'm a little scared." And then the second you realize it's not that bad an issue, people are back on the thesis again. So, I think for many of these super high-flying stocks that can double and double again, you're going to expect some volatility. I mean, even on a big basis, the NASDAQ went up 600% from 1994 to 2000. And in that move, it fell more than 10% 10 times and one of those fell 30%. It still ended up 600% up. We have to stomach a lot more volatility on these high growth high flare name as I think for G and over that's just part for the course. >> And if you if you really think about it in terms of what we're what we saw there, I mean Joel nailed it in terms of the volatility. But part of this was I mean just structurally we saw a broader selloff in the overall market because everybody was worried about hey is the um trader homo closing and the and the Iranian conflict could disrupt basically interest rates drive interest rates up cause us to then have basically a reason that we couldn't afford all the capex spend that everybody's talking about doing and then that's going to create all this panic and that that is the classic example as Joel talked about of that 10% drops 30% drops that can happen in this kind of a bull market because people anchor on this one narrative out there and they focused on that and said well GE Vernova if we're not going to build a bunch of data centers because nobody can afford it afford financing it oh no are we going to have an issue with G Vernova G Vernova and that whole entire thesis are fine they're going to be fine but that was that was a big part of the volatility that happened right there >> if the bottleneck doesn't go away the pricing premiums don't go away the backlog is not going away I would stomach the volatility that comes from macro stuff because the stock is still going to do very very very well >> yeah I think it's hard for the market to see volatility in such a strong name. I again there's a new growth case for this very old established company, but when you see a huge company that's been around for forever, see the kind of volatility it's had, I think that that can give some people a pause. Uh but right now it's swinging in the right direction, the direction most investors would like to see it anyway, uh for those who own the stock. One thing I want to point out before we move on to the don't buy list is just looking at the most recent earnings report. It's too impressive to not talk about and I'm I'm curious what's behind this massive beat that we saw. >> It's truly it revolves all around what happened for the backlog and also their ability to expand capacity. So this is a company just to put in perspective for G Vernova they were making 10 to 12 gigawatts worth of uh gas turbines effectively in terms of what they're making in 2023 before they spun out of GE right G Vernova spun on its own this year they're forecast to make 20 gawatt worth of capacity in 2 years 24 they might even get to 30 gawatt that's that's 2 and a half to 3x where they were and in terms of the electrification part of their business which is basically balance of power all the stuff other than the turbine that you need to do transmission and distribution that you need to basically have the power plant built and get stuff to the data center all of that stuff which they recently they only bought basically the core part of that business in the last year and change they are massively ramping capacity for that business and planning to for a lot of the key things like transformers and other things double capacity so that's one big part of it Bridget but the other part of it too is this is a company that when they spun out of GE they were saddled with a lot of legacy costs and operating costs. And they have been focused on getting their margins into a more reasonable case and going to the point where they have such strong demand for their turbines that historically their turbines they sold as a loss leader because what they basically said is hey the value is not it was like a razor it was like a razor and blade model. The value for them wasn't in the turbine it was in all of the servicing they get for the next 20 plus years of that turbine afterwards of you having to replace it. But now because demand is so strong, they're getting pricing power that they could actually charge a good margin for the turbine too. And people didn't wrap their minds around how that economics is going to change for the business. And the exciting thing is is that isn't a short-term thing. When you look at a lot of their competitors like say an Emerson or some of these other big or I should say big big big makers of of power equipment, their margins are closer to their uniform return on assets I should say is north of 20%. and G Vernova started at 5% and they're on their way there. And so it's a combination of margin getting priced and also ramping capacity that even with how much this stock had run, the market hadn't wrapped its mind around just how big that was happening and how much it's going to continue to happen. >> Yeah, there's clearly so much demand here. And it's also clear to me that you both understand the energy story and the demand that's coming here very, very well. That's why you and the team at Ultimatry Research released this special report on dark energy where so much of the money in the AI story is flowing right now and will continue to flow for a while. So, if you want to check out that special report for yourself and see the stocks that they talk about there, make sure to scan the QR code or click the link in the description to get that special offer just for our market beat listeners today, too. Well, guys, let's move on to this last segment. And this is just as important, and it's two stocks you say not to get into right now. And I'm a little sad because this first one on the list is one of my favorite concepts for a company. >> Yeah. And that's A Space Mobile. And right so this business is basically the direct competitor for half of what Starlink is theoretically in connectivity is going to do because when you think about Starlink, everybody thinks of Starlink as the dishes that mean you get broadband in your home. But when they talk about the opportunity, it's that plus basically direct to cellular is what it's called. um in terms of you being able to use satellite connectivity to be able to make phone calls to be able to do everything that you need on your phone. Um and so first off, it's relevant to note as kind of fighting with tan tide behind its back rel to Starlink here because Starlink already is making money as we mentioned. It's a 30% ROA business and then it's going to be investing next to that for the direct to cellular business. Um, but A it's this is a company that has a negative 14% return on assets, right? It is still in startup mode while it's already fighting with an incumbent that actually has profitability to be able to invest and already has a far more dense satellite um constellation of satellites to be able to do it. So, it already has a challenge there in terms of that. But also, if you look at a business that is, you know, currently a 30 billion dollar business, their whole entire idea is that they're going to be a partner with a Verizon and AT&T. So, where they don't have cell towers, you can use satellites. Well, that already is kind of a finite space. When when we've looked at really good research for this, when we were analyzing SpaceX, people talk about this as being like a $45 billion opportunity around the world in the next 5 to 10 years. Well, when you already look at that and you have to factor in the profits and everything else that's going to be end up for this business, it already being at $30 billion assumes that it's going to take a huge slug of that market. And we look at it and we go, well, we think that SpaceX is actually as an already incumbent that's there. They're going to be a logical partner for a lot of the legacy carriers who want to have that fill in that they're not all going to only benefit only back A, which is what really you have to bet on for where's valuations are now. And that's where we'd say this is one we're not saying short it, but we're saying it's just got a lot in front of it to be able to actually execute on what the market needs it to get to. >> Yeah, that's one thing that has come up in conversation with this name before is we love the idea of being able to have cellular service wherever you are in the world, but how much capital it takes to really build out that network is immense. It's it's a crazy to think about what it will take to actually build out this network they're planning on. And yet you mentioned those bigger carriers, the Verizons, the AT&T, and they were actually solidifying some investments or contracts with those carriers. Does that give you any hope that they're uh larger companies are uh believing in what is building or will we start to see those contracts potentially shift to Starlink if it truly is a a similar story competitor? >> Well, I think the important thing is it doesn't need to be an or. It can be an and and the bigger issues when we look at a right now you know the market is a pricing what we really care about we were talking about pees earlier right what we care about when we think about valuations is pe are heristic to get to what is the market pricing the company to do in the future and when we look at uniform return on assets and what the market expects a to get to it's already pricing as for return on assets to get to like 20 to 30%. And so the market's kind of already paying for the idea that they're going to get those contracts. They probably will, right? I mean, in reality, to your point, AT&T and Verizon do not want to have to be dependent on Starlink and SpaceX because if they are, they know that Starlink and SpaceX can turn the screws cuz that's what they do to all of their consumers in terms of what Verizon and AT&T do. And they know that's just the playbook being played right back at them. So, they want to have a stocking horse. It's much like how all of the PC makers used to always want to make sure that AMD was around with Intel to make sure that Intel couldn't just ride rough shot over them. And think of a as kind of the AMD in this story. It's always going to be the little brother. It's has a reason to exist, but it doesn't mean that it can be that 100 to20 billion dollar opportunity that people might be thinking about because it's probably just being kept there as a stocking horse more than anything else. >> All right, one quick look at the stock chart before we move on. you're saying this is one to not own right now. That growth story is too great. Um, one thing that we've heard about and talked about with the space story is it's could be a time to buy the dip with these other space stocks that all saw a big pullback when SpaceX went public. Do you think that turnaround story could come for a uh stock chart or do you think it's going to hover around or struggle around uh where we're seeing it right now? >> Yeah, again this all comes to embedded expectations, right? And so what you need to have is reasons for the market to think that the market's current expectation, which is already for a good scaling with an AT&T and a Verizon to get better. That's what you need to figure out if you think that that's going to happen and the trend of announcements for deals, the trend of announcement for launches, the trend of announcement for cash flows is going to be better than what the current trend has been. And I don't know because I'm going to defer to people who are smarter than I am on that. But that would be the question that I would ask. Do you think especially because Elon right now really wants to make sure that he's announcing some great deals to give every everybody all the justification in the world to be behind SpaceX. Do you think that the launch those those agreements and those deals are probably going to be tilted one way or the other? That would just be our observation. >> All right. an interesting first one on this do not buy list, but even more interesting is the second one you have on this do not buy list, especially when we talk about Elon and what valuation you put on all the the parts of the SpaceX story. So Joel, let's get into the second stock right now. >> I I mean, let me just context and say I love Elon Musk's first principles. I think he is one of the greatest most innovative entrepreneurs in the history of mankind. I mean this is I'm I'm there as a groupy but the problem is on Tesla is the valuation and we always talk about expectations what kind of return on assets what kind of profitability does Tesla have to have to justify today's price not to give you upside today's price and the problem is it's a 50% ROA that's higher than Coca-Cola that's higher than almost every that's n you're putting the one or two percentile of companies around the world and the current ROA is six so how does 6% get to 50%. Now, there's a time where they had 20 30% returns. When Tesla was producing cars and people were buying them ahead of time, they were backlogged. He had everyone thought that Tesla was like the savior. And that was before, frankly, he aligned himself with the current administration and people started like firebombing cars and keying Teslas and it's no longer the the hot idea. But I I I want to say the bigger issue though is competition. Elon Musk and Tesla. If you think of it as three big pieces, I'll add a fourth in a second, but the big pieces of making cars, making batteries, and let's throw in making solar, right, as a smaller piece. And you've got China saying those are exactly the businesses we will subsidize everything to win no matter what. And we don't care what losses we'll take. So you have China with 100 plus EV car makers that are grossly subsidized in the power of electricity. The cost of electricity is nothing because they pollute the air more than the rest of the world combined now with coal fired power plants which is great for making cars. It's just bad for the environment. They they have virtual slave labor building out those cars. You also have R&D subsidation because every car company in China can steal any patent they want from the rest of the world. And no car company, in fact, no company in China has ever been successfully sued for stealing the IP of other count's intellectual property. And so they have no their R&D is subsidized and then on top of that there's actual cash subsidies from the government saying here we'll just pay you. How do you compete with a country like that that because of that they destroyed global solar and now you can only get solar from China because they crushed their competition because they're being so grossly subsidized. What I'm getting it is no matter how great is innovation, when you're competing with that kind of competitor and then other electric car companies of the world that are making decent electric cars again in many cases at a loss, but they're willing to kind of buy the loss for the future kind of idea. Well, this is something that car companies are notorious for. And so, how do you get from a 6% return assets, which is reasonable given that competition, but get that to a 50%? I just don't see it happening. It's way too loft their goal. And that's what you have to have to get upside in the stock of any significance from where it is right now. >> Yeah. I want to talk about the optimist portion of Tesla. And I'm wondering if that argument that you just made about the competition with China who can do the same thing but much much cheaper because of all the the reasons you mentioned. I feel like that robot story potentially plays in there too. We know China's well ahead in that race for robotics. And even though uh Elon and Tesla have lots of plans for Optimus, do you think that there's a similar uh case story here that China's just going to do it for cheaper? >> Yes. And just building a robot, China could do very cheaply, but the AI necessary to make the robot function, whatever. The US is still way ahead in the AI race and I believe will continue to be. I know people are saying China's on our heels. I It's true. China is on the heels. They're number two, but they don't have the longer term innovation in place for the creativity of building out AI the way the US has. I know I'm gonna get trolled on that, right? Because people are all like, you know, so bullish. China, China, China. But the fact is China's innovation is all government driven and governments are not good at innovation, right? Venture capital is dead. Angel investing is near dead, right? Sorry. There's government venture capital, but real I want to invest an entrepreneur who's got something you just don't see happen in China anymore. So the issue is, and what this is going to lead to Rob's favorite point, which I'm setting him up for, is if Optimus can succeed, it's because it has far better AI, far better intelligence, and the AI is not residing at Tesla. It's at SpaceX. And then if I want to go into say what are the other things that SpaceX is doing that we talked about earlier, that may require batteries, which Tesla has, that may require um obviously robotics, that may require the solar technology. It sounds like this should be one company, shouldn't it, Rob? >> I think I think that that is probably what Elon plans for it to be, which is why everybody we don't think that it's that you should short Tesla at all because we wouldn't be surprised if Elon were to swoop in and basically say, "Yeah, you know, I've never been a friend to people who care about corporate governance. I mean, look at Solar City with Tesla. Look at both Twitter into XAI and XAI into SpaceX." So, we wouldn't be surprised if that merger happens. But the one uh last point on Optimus that I think is worth making, Bridget, is um it's really relevant. You know, you bring up China, but let's not even talk about China in terms of can this actually be a high ROA business. Who are the other companies who are talking about making robots? The one that I always see advertising, Hyundai, um or it's Honda or it's Toyota. The point is it's car companies. So, they're going to follow the exact same playbook they always follow. And to Joel's point, because of the AI benefit that you might have in the Elon Musk ecosystem and when they possibly smush together, um, you know, they might have some leg up, but that's not a leg up that means 50% returns. That's a leg up that means it's a good industrial business, which is, you know, a 20% return on asset business. So far away from what the market is pricing right now for Tesla. >> I feel like we could keep talking for a while, but it's already been a really long conversation today. Thank you both for your time. And if you are really interested by this Elon Empire idea and the concept of potentially Elon ruling all of his companies under one stock ticker, make sure to watch this video. It's a full interview with Luke Lango from Investor Place talking about exactly this, Elon's empire, and the likelihood of him combining this all into one massive company. You can watch that full interview