5 Stocks Have CRASHED. I’d Only Buy 2.

Netflix is down around 6% after their earnings and after a fall like this, buying the dip feels tempting. But the cash flow number behind the valuation, it contains something you cannot simply expect to happen again next year. We've got AppLovin, that's lost around 60% just this year despite enormous recent growth. That could create an opportunity. It could also punish anyone who assumes the strongest numbers are going to continue. Today, we're going to test that assumption. And you want Intuit, that's roughly half from its high. A familiar brand at half price, it sounds attractive until you examine what's helping the cash flow. I'm going to show you why the starting number can completely change the apparent bargain we're seeing. And just yesterday, we saw 404 S&P 500 stocks rise. I'm going to test five fallen stocks, explain which I'd leave alone, and finish with my strongest candidate. But first, what does this rebound actually tell us? Well, sentiment reading, we're 27 still in fear, although it's improved from extreme fear. It gives us a useful explanation for nervous trading. It doesn't tell us whether any particular company's shares are below their underlying value. Now, Tuesday's breadth, it is encouraging because the recovery reached well beyond a handful of giant companies. About 80% of the index rose. Remember though, one strong session, it can't establish that earnings expectations have stopped falling or that the correction has just simply finished. And this momentum chart, it helps explain some of the damage. The 6.4% move is weekly performance relative to the market. Crowded positions are unwinding, which can drag good businesses down alongside companies whose growth assumptions genuinely need cutting. And it's clear to see that valuations, they've adjusted unevenly. The index is around 19 times forward earnings, near its long-term average. Technology, it sits below its historical averages while several defensive sectors, they remain above theirs. A defensive label, it doesn't guarantee a cheaper stock and we can see that 88% of the companies that reported, they've beaten expectations, but only 64 companies have reported so far. It is encouraging, but just an early sample, so I'm not going to apply that beat rate to the whole index just yet. And this chart, it shows more credit protection trading alongside heavy AI-related borrowing. Trading activity alone, it doesn't prove defaults are coming, but financing deserves attention. We're going to listen to Larry Fink explain why competition for capital could keep borrowing costs elevated. >> And so the competition for capital is is as large as I've ever seen in my professional career. Um if you listen to the hyperscalers in the United States alone, they're talking about a need for 7 to 9 trillion dollars to build out and and to ensure that the United States is a leader in AI. Um that type of financing, that type of funding on top of the financing for the federal deficits is is putting um the term premium to be higher. And I think we're going to see that term premium higher. >> Now operating cash flow, it can look healthy while investment absorbs much of it. The chart shows the valuation gap. I'm going to value cash remaining after capital spending, then test a higher required return. Netflix shows why both steps matter. Now we can see Netflix trading around 64, 65 dollars in the pre-market. When you compare that to their 52-week high at 117 dollars, well we're talking down around 45%. That fall is substantial. Whether expectations are now low enough, that requires a closer look. I mean you see Alpha, they've got it pretty much at a borderline hold. Wall Street more respectful in terms of a buy. And over the last 12 months alone it's down 45%. You've been holding over the last 5 years, you'd be up only 10% and the immediate problem is a slower outlook alongside a content overhaul. Annual advertising guidance is now around $2.7 billion below the earlier 3 billion. Investors need evidence that programming changes can improve engagement and sustain growth and the business it remains highly profitable. This quarter produced $12.9 billion dollars of revenue and 4.5 billion of operating profit. Now these figures they explain why calling Netflix a broken business would go much too far and this sequence it explains the concern. Revenue growth has slowed from above 17% to 16, then 13 and now below 12. Yes, sales are still increasing but investors are reconsidering how much to pay for this slower growth and the regional picture it provides some balance. North America generated 5.6 billion dollars this quarter. Europe, the Middle East and Africa they contributed about 4.1. Netflix has a substantial international business which is supporting the overall revenue base and the trading operating margin is now above 30% while the share count has fallen. It supports earnings per share. Future buybacks though they still require cash and today's strong margins they're going to hold up through the programming reset and the international contribution it deserves attention before we value Netflix. Tom Rogers distinguishes its overseas strength from its US engagement challenge. His assessment explains why credible bull case it can exist alongside today's disappointment. Listen to this. >> Uh the the one thing you have to say is when you look at the international market and their international engagement they're doing something very right. They got the top programming in India, in Japan, in the Netherlands, in the Nordic countries, in Mexico. And so their international non-English engagement now is up to about a third of their overall viewership. So they're hitting on all cylinders there with an international strategy that none of the other streamers can touch. Their issue is really US engagement. >> His point is that international success can continue while US engagement needs work. These issues is a separate scrutiny. Strong overseas viewing helps, but it doesn't establish how often Netflix can successfully raise US subscription prices. On the valuation, it's now become less demanding, trading around 19 times forward earnings. That's below their 5-year since at 34, so investors getting a 44% discount. Slower growth, it may justify some discount. Buying because the multiple used to be high, that leaves a question unanswered. And you can see these annual estimates, they expect much lower earnings growth next year, 6.1% before again 2028, 17% by 2029. A low future multiple as we can see here, they depend on the underlying earnings actually arriving. Now the cash flow adjustment, this year's cash included a roughly $2.8 billion after-tax termination fee from the failed Warner transaction. That improves cash received today, but we can't compound the same one-off payment into future years. Now the model assumes $12 billion of cash flow this year. That is based on their guidance just from yesterday, and then 12 and 1/2 billion from 2027. This is from analyst estimates where they've essentially taken the 2026 less the termination fee, and then added around low double-digit growth. This model then taking in both management guidance as well as analyst expectations of 2027 comes to $71 against $64. This price could be very volatile today. That equates to 11% upside. Bear in mind we are using a 9 cent discount rate, which equates to around a 10% margin of safety. Personally, I want more room while engagement and recurring cash generation they remain uncertain. Now, if you're someone who believes this discount rate is a little bit too optimistic, you want to move from nine in fact going to 10%. Well, we can see the value drops to just shy of $60. The modest change it removes the apparent discount. This is why I wouldn't buy solely on the headline valuation. And your cash flow guidance, that also fell partly because of a planned fourth quarter property purchase. It affects cash timing separate from the termination fee and doesn't by itself establish that ordinary subscription cash generation is suddenly collapsing. And we've got the operating profit multiple, it shows how much enthusiasm already disappeared from the price. It improves the starting valuation. I still need confidence in the earnings underneath it while Netflix changes its content leadership as well as its spending priorities. We also have Bernstein, one of the first who've cut their target from $95 to 80 while keeping an outperform rating. Now, bullish recommendations, they can survive falling estimates. The target here provides another opinion, but the return still depends on the price paid and the future execution. Well, we can see Wall Street as a whole their average price target comes to $88. That does still imply upside around 28%, but I'm expecting over the course of today and the next few days for more analysts to cut their targets and for this value to eventually fall down somewhere around the $80 region. Also important to highlight the balance sheet for Netflix is a strength. Net debt is modest compared with operating earnings before depreciation amortization. It gives Netflix flexibility. My objection is the thin valuation cushion rather than an immediate financing crisis. For me, Netflix it ranks fourth for a new purchase. I'd wait for a stronger recurring cash flow evidence or a better price, Qualcomm actually comes below it because it's a apparently reasonable valuation. If it lies on a cash flow base, then needs even closer examination. And before we jump into Qualcomm, just to let you know, we released our latest weekly article ranking 40 stocks near 52-week lows, three that I believe are the best opportunities. You can click on the pin comment below, sign up, read all of these straight away, where every single week we uncover severely undervalued stocks, as well as what's going on in the market. Click below. As I said, you can sign up, read straight away. Now, Qualcomm is trading at $175. It's roughly 32% below its high of around $260. Although we can see it is slightly positive this year, up 3%. Over the last 12 months though, it's also up around 5%. Over the last 5 year, up 33. We can actually see two peaks, one in 2024, where it was around $222. And not that long ago, in fact, this year 249. As of now though, it is sitting around the mid to low end 52-week range. Hold rating from Wall Street, very weak buy from Seeking Alpha. Where their latest quarterly report was released in July, so we are expecting one very soon. Their revenue fell 4% from a year earlier, while adjusted EPS fell 20%. So, beating revenue expectations, it doesn't erase the decline in the actual year-on-year comparison. And revenue growth here is low, and the earnings forecast, they're not especially strong. We can see year-on-year revenue up 2% over the next 12 months, expected five. EPS expected to be flat over the next 12 months, and up only 6% over the longer term, when the sector comparison sits at 20, their own five-year high at 10 and a half. So, Qualcomm has attractive technologies, but the valuation needs to work with today's available earnings outlook. A promising growth story alone, it can't settle the buying decision. And margins, they've softened too. The The operating margin is 24% below the prior year's 28. Cash flow margin, that's also declined. Margin pressure matters more when the revenue is growing slowly, leaving less room to absorb it. And the forward cash flow estimate here sitting around $9.04 per share, below the trailing figure. Multiply that by the share count and annual cash flow is roughly 9 and 1/2 billion dollars. So, remember that number because the DCF, it begins with 12 and 1/2 billion dollars this year. The latest 9-month filing generated around 6.8 billion after capital spending, reaching this figure, which is based on what analysts are predicting, by the way. It essentially requires a very strong final quarter. It isn't something that I would assume or give a lot of confidence for this to actually happen. Earnings estimates, they also point lower over the next 12 months. The central question remains whether an earnings recovery arrives quickly enough to support today's price. And we can see their forward P, their valuation sitting around 19.2. That's a above the 5-year of 14. Now, it's clear it's not an obvious bargain based on this, but it could be giving us a potential overvaluation signal. Massive disparity from their 5-year average, for which when we look at the blue tunnel from Simply Safe Dividends highlighting intrinsic fair value, it's sitting above. There is a disconnect here, which could indicate again another potential overvaluation signal. Now, getting back to the DCF model, we can see it at 12 and 1/2 billion as we stated for 2026. We've assumed a medium growth rate of around 4% annually. Again, 9% on the discount rate. Under these assumptions, it comes to $205. That's the favorable case that we must test, indicating 17% upside with a margin of safety sitting around the 15% level. Now, if you require 10% instead of the nine, well, we can see in fact it does change the value, coming to $175. The apparent discount, it completely disappears. It leaves little protection against the earnings uncertainty that we've just seen in the forecast. Now return to that lower forward cash flow estimate. Forecast peers differ, so it doesn't prove the larger DCF base impossible. It does warn against trading 12 and 1/2 billion as a recurring result already established by the business. Illustratively as well, if we start, let's say, from 9 and 1/2 billion, keeping the 4% growth rate, well, the value it falls to $155. That at 9%, well, we can see that's negative and no upside whatsoever. And then at 10% if we increase the discount rate, well, the value falls even further to $131. So, the starting point here, it really matters. Now return on invested capital, that's fallen to around 19%. It remains respectable, but the direction concerns me alongside weaker margins. The valuation needs sustainable cash generation, so assuming a recovery in advance, it would conceal the risk that we're trying to price. Now debt, it isn't the central problem. Net debt remains manageable relative to operating earnings. I can recognize that financial strength while passing on the shares. A sound balance sheet doesn't make an optimistic cash flow evaluation conservative enough to buy today. So, Qualcomm, it ranks fifth. I'd want clearer earnings improvement or a lower entry price. Intuit looks cheaper on its headline valuation, but there's another cash flow adjustment coming. This time unusually low taxes, they help reduce the apparent bargain. Now Intuit is trading around $335, roughly half of its high. The owner of QuickBooks and TurboTax has familiar products and recurring customers. It makes the fall interesting, provided we examine what those customers generate in sustainable cash. Now over the last year, they're down fairly similar. Over the last 5 years, you'd still be down. Over the last 10 years, you would be up. That's if you held through all of this, 210%. They're trading towards 52-week lows with a respectable buy from Seeking Alpha, a weak buy from Wall Street. Now, revenue is still growing with the forward estimate here sitting around the 11 cent. Investors reduce what they're willing to pay for that growth. That's our task is to judge whether the price reduction has gone further than the business outlook justifies. Now, this comment is from May. Intuit acknowledge losing price sensitive do-it-yourself filers on price. That's direct evidence of a competitive problem. When management itself identifies pricing pressure, I want the valuation to allow for it rather than assume it disappears. And the operating profit multiple, it's near the lower end as we can see going back to 2015. Investors have already cut expectations substantially. The decision depends on whether that reflects excessive fear or a lasting reduction in profitability. Historical cheapness alone, it can't distinguish between those outcomes. Now, these multiples, they do look compelling around 14 times forward earnings and 10 times free cash flow. But earnings definitions match and whether this particular cash flow year it represents what shareholders can reasonably expect again. And we can see cash flow per share is rising while the price is falling. It's an appealing picture. Fiscal 2026, however, it benefited from unusually low cash taxes. Part of the jump therefore, it needs adjusting before we treat the latest cash flow as a recurring base. Now, our model we can see carries a .6 billion dollars forward without any growth. In fact, from 2026 to 2027, we have kept it constant. It looks cautious, yet holding a temporary elevated figure flat, it could in fact still overstate recurrent cash generation. We need to understand the tax benefit inside the starting cash flow number. Cash taxes in fiscal 26 were about 280 million dollars. Management expects roughly 2 billion in fiscal 27. Now, growth may offset some of the difference, but a flat cash flow base it still needs justification. Now, as a tax only illustration, if we use, let's say, 6.9 billion of annual cash flow without any growth, well, we can see the calculated value it comes to $349 at around 9% discount rate, again, keeping that constant. Or, in fact, if we go to 10%, it comes to $301. The bargain here, well, it's much narrower. We can see the valuation using 2027 as flat from 26 and a 9% discount rate, it gives a 24% margin of safety. Now, if we go back and change that 9% to 10%, well, we can see we get $376. There is still upside. Combining higher required returns with normalized taxes, it creates the tougher test. Earnings contains another comparison trap. Intuit's new adjusted guidance includes stock-based compensation that older adjusted figures exclude. So, lower looking number can therefore reflect a changed definition. Compare the same accounting basis before concluding profitability has suddenly collapsed. And we can see that Intuit's buyback spending is substantial, but the share count doesn't fall by the same percentage. Share compensation, it offsets some of the repurchase. I want the net share reduction alongside the cash spend, because that's what tells us how the remaining owners benefit. Now, good to see net debt is low relative to operating earnings, leaving room to invest through a difficult period. The flexibility helps keep Intuit on my watchlist. The cash tax adjustment it still prevents me from treating the headline discount as a complete investment case. The depressed multiple, it also reflects uncertainty about AI's effects on software economics. Mike Wilson describes a possible shift towards companies using AI. Listen for that opportunity, then we'll separate his broad market thesis from the evidence that Intuit needs to deliver. >> It depends on what part we're talking about, right? There is a transition going on within the AI trade from kind of what we call the enablers to the adopters, right? So, all the spending that's been going on has been incredible for semiconductors, some of the power stocks, all the ones that benefit from the the spending itself. But now that infrastructure is being developed, and the question is, is it economic for all the players? So, the the market's doing a good job of separating some of the winners and losers. And now what the what the market's going to get excited about next year is the actual users of this technology, leading to better revenue growth and profitability. >> That's a plausible direction, rather than prove Intuit will win. I'd look for AI adoption translating into retention, revenue, and cash after investment. These growth figures provide a baseline. Improvement needs to show up in the business results. Now, Intuit, they could move high if recurring cash generation supports this base after tax is normalized. A lower price could also compensate for uncertainty. Until then, I don't know an unusually favorable cash flow year, making the buying decision for me. So, Intuit ranks third, a conditional opportunity with the tax adjustment explaining my caution. Now, we reach the two candidates I find more interesting. AppLovin offers greater potential growth, but accepting its business risk is essential to the buying case. Now, AppLovin is trading at $272. It's down around 60% just this year. And we're talking around 63% from 52-week high $738. That's an enormous reset in expectations for a company still reporting strong growth. Lest test the opportunity is one that Wall Street will have a near strong buy rating, C Alpha four out of five in terms of a buy. Over last year, it's down 52%. Over the last 5 years, well, you would be up around 192. And their trading revenue growth here is sitting at 61% with forward growth sitting just shy of 30. The business can remain attractive while slowing. My valuation needs to allow for that change rather than extend the strong historical growth into the distant future. And forward earnings, well, they're priced in the mid to high teens depending on the measure. The sales multiple, well, in fact, they do look elevated. AppLovin therefore needs strong profitability to persist. Cheap-looking earnings offer less comfort if advertising performance deteriorates and margins come under pressure. And these estimates here, they expect substantial earnings growth bringing the future multiple lower. The attractive multiple still depends on profits that are not yet earned. So, I wouldn't select the cheapest-looking future year without checking how demanding the underlying earnings forecast has become today. And this plot, it places AppLovin among companies with strong expected growth and a lower earnings multiple. We can see, in fact, they're sitting right down here. It's useful for finding ideas. Different businesses and accounting definitions, they limit the comparison though. So, it's a position on the chart, it isn't a standalone valuation. And revenue and profit per employee, they illustrate a highly productive operation. Notice the different axes. Business mix and employee numbers, they also affect these ratios. The figures are impressive, but this chart alone can't establish how durable the profitability will prove. And AppLovin's cash flow per employee, it also stands out against Nvidia. It shows productivity relative to workforce size. Choosing the better investment it still requires the purchase price and durability of cash generation. The higher buy doesn't settle that comparison. And then net debt is modest after accounting for cash reducing financing pressure. The larger risk, it sits in the advertising performance, access to major platforms, and the growth embedded in the valuation. A strong balance sheet helps, but those business uncertainties, they remain today. And this third-party Axon chart suggests wider installation across online stores. It's supporting investigating the commercial opportunity. Keep the unit clear. Installations don't measure active paying advertisers spending or recognize revenue. The curve itself is a useful indicator rather than a sales forecast. And the latest quarter produced around $863 million of free cash flow. It confirmed substantial cash behind the productivity figures. Quarterly cash, it does fluctuate however, so the annual starting point of valuation, it still needs checking. Now our DCF, it starts at $5 billion of cash flow, up around 27% from the prior year, just below $4 billion again from analyst predictions. And then we've got a middle right here of 10%. Now the model obviously then requires a strong initial year before the more moderate growth path begins. This base case comes to $397. That's roughly 46% in terms of upside and a 31% margin of safety. Meaningful cushion provided the starting cash flow and subsequent growth, they prove to be sustainable. Now reduce growth after that starting year to 5% at the same 9% discount rate, the value falls to $283. Most of the upside disappears. The purchase remains sensitive to how quickly the growth moderates. It's why I won't convert the installation curve into a revenue forecast. Those stores need to stay active and generate profitable spend. Distribution becomes valuable to shareholders when it produces durable cash after the cost of serving customers. Keep the 10% growth but require 10% discount rate instead of nine or the value it comes to $334. Some upside does remain. Testing what happens when investors demand more compensation for risk, it helps us judge the apparent cushion. Now read the earnings multiple alongside stock-based compensation. Share awards cost owners through dilution even when adjusted profits, they exclude the expense. Mixing adjusted earnings here with unadjusted earnings elsewhere, it can make the valuation gap appear more attractive than it really is. I mean, at a 12% required return, the same growth path, it gives us $251 below today's price. Someone demanding greater compensation for AppLovin's business risk, they can reasonably decide the apparent bargain it isn't actually sufficient. The recovery case depends on strong earnings as growth moderates. What revisions to these forecasts rather than assume the price returns to its old high? That high record what investors once paid, future cash generation it determines what the business is worth. So, AppLovin ranks second as an aggressive buy candidate. The upside is attractive with a wide range of possible outcomes. Booking takes first because its valuation asks less for growth. There is one important cash adjustment to consider there, too. Now, Booking is trading around $160. We're talking around 26% below its high around 220. Its fall is smaller than several names here. It leads because of the assumptions needed to support the value rather than because it fell the furthest. I mean, we got a near strong buy rating from Wall Street, respectful buy from Seeking Alpha. Over the last year, down 24%. Over the last five, up around 67. And revenue growth was up 13% year-over-year. Forward revenue sitting around the 10% region. Expected earnings growth, well, that's strong at 18% moving forward, 17 and a half over the longer term. Travel remains cyclical, but the figures show why a falling share price isn't automatically be read as a shrinking business. And if AI agents become the starting point for travel planning, booking platforms could lose control of customer relationships. Traffic costs and margins could suffer while overall travel demand stays healthy. That's the economic risk this headline is asking us to consider. And large platforms, they're trying to handle more tasks for users including booking travel. Booking needs to preserve its usefulness and customer access. A new agent creates a credible threat. Its existence alone. It doesn't tell us how large the eventual financial impact will become. And Booking's portion here is around $197 billion of trailing gross bookings. The larger total combined three companies and gross bookings, it measures travel transaction value. It's not revenue retained by the company. The distinction matters when assessing the scale. And their trailing operating profit is coming to around $9 billion. The future bars, which we can see their estimates, but Booking has an established profit engine. While the projected increases, they still depend on execution and travel demand. I'm going to avoid treating these future profits as if they're already secured. And free cash flow, that was around $9.1 billion last year and $9.5 billion as we can see on the trailing figure. 10-year growth rate sits around 10%. The longer history is more useful than a pandemic-distorted recovery period when setting sustainable assumptions. And these quarterly repurchases return substantial cash to shareholders. They improve each remaining owner's claim on earnings when the purchase price is sensible. Buying below business value creates the benefit. Announcing a large dollar amount, it doesn't establish that value by itself. And their shares outstanding has fallen roughly 39% across the period, showing the lost effect of repurchase. I'm not going to count historical reduction again in the DCF, but the current share assumption, it already reflects a smaller ownership base than what we saw a decade ago. And forward earnings, it's sitting below 15 against a five-year average 20. It supports investigating the shares. I'm still not going to assume the old multiple returns, especially if AI permanently changes how customers find and book their travel. Whether blue tunnel from Simply Safe Dividends gives us that severely undervalued signal disconnect on the bottom end. And net debt, well, it's modest relative to operating earnings. Now, the model grows roughly $9.1 billion of annual cash flow at a 5% rate. We can see it requires a 9% return with 3% terminal growth. These are assumptions. Management is not promising to deliver that exact cash flow path. The value then comes to $237. That's roughly 45% upside or a margin of safety of 31%. Booking reaches that result with less growth than AppLovin's initial step requires. That difference is central to the ranking and the model's first year forecast, it sits slightly above this chart's estimate while its following year sit below. Is a useful cross-check. Doesn't prove every assumption is conservative, but the model isn't simply selecting the highest visible forecast throughout. Now, go from 9% and you want to require 10%. Well, the value it falls to around $202. That's still roughly 24% above the price. The resilience helps explains Booking's place at the top of my ranking. Now, we also have fresh news where the European Commission opened a formal investigation into Booking's handling of scams, fraud, and advertising transparency. It has not established wrongdoing. I'd monitor the potential compliance costs and operating implications alongside the valuation rather than dismissing the announcement. Booking, they've got direct customer relationships and app and then loyalty program that may reduce dependence on outside traffic. Those provide some defense against anti-disruption. The valuation still needs to accommodate weaker future cash generation if the competitive pressure grows. Booking, well, they rank first as the strongest buy candidate here subject to cash normalization and travel risk. Is appealing is the valuation room at modest growth. The shares don't need every concern to disappear for the potential value to matter. So, as a quick recap, in fifth place is Qualcomm. I'd stay patient. The apparent discount disappears under a modestly higher required return and the low forward cash flow estimate, it weakens the case further. In fourth place is Netflix. The business remains profitable, but today's price offers limited protection after a one-off cash payment and the required return received proper scrutiny. In third place, we have Intuit. It stays on my watchlist. I want recurring cash flow to justify the discount after unusually low cash taxes return towards normal. In second place, AppLovin, the aggressive candidate. There is meaningful potential upside, but slower growth or a higher risk allowance it can remove much of the apparent bargain. And first, it's Booking. The valuation holds up better with modest growth. But, which one do you believe should be number one? Are you in agreement with the ranking? Maybe you'll change. Let me know in the comments. If you enjoyed today's episode, smash that like button, hit the subscribe and bell so you're aware of future releases. Don't forget to click on the pinned comment where you can sign up, read all of these straight away. But, more importantly, have a great day. I'll see you all on the next one.