Wall Street Unplugged
Episode: 886April 27, 2022

It’s time to start picking away at big tech

bear market

Earnings season for the first quarter (Q1) of 2022 is underway… And as we battle with the bear market, the results are shedding light on what we can expect for the rest of the year.

Today, we highlight the latest reports from Alphabet (GOOGL) and Microsoft (MSFT)—and the incredible opportunity we’re seeing in these big tech names. 

We also explain what Visa’s (V) results indicate about the possibility of a near-term global recession… and how to manage your expectations during a bear market.

Inside this episode:
  • How to think about bear markets [1:25]
  • Google’s massive buyback plan [5:50]
  • Microsoft’s incredible earnings [14:50]
  • Microsoft vs. Disney [19:44]
  • What Visa’s earnings say about a global slowdown [24:20]
  • This “boring” business is one of the best in the world [29:00]
Transcript

Wall Street Unplugged | 886

It’s time to start picking away at big tech

Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.

Frank Curzio: What’s going on out there? It’s Wednesday, April 27th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break that headlines and tell you what’s really moving these markets. I’m bringing in my buddy, Daniel, today, like we do every single Wednesday. What’s going on, Daniel? Daniel Creech.

Daniel Creech: What’s going on? It’s another great Wednesday here on Amelia Island.

Frank Curzio: Yeah, I was thinking when I say, when I break down the headlines and… I’m just not going to say anything for like 30 minutes to see how long people stay on the podcast.

Daniel Creech: Don’t you already? Isn’t that gap already long?

Frank Curzio: I don’t know. I’m not going to say anything-

Daniel Creech: Don’t you get people email?

Frank Curzio: …For like five minutes. I wonder if we can track to see if people are going to wait until I say the rest of it.

Daniel Creech: Didn’t you extend it though, because you got a few emails that were getting on you about it? Which makes sense.

Frank Curzio: If you’re going to make fun of me… And you know, we always love when we hear your thoughts on how to make the podcast better and everything, which is awesome. But when people get on me, it’s something that annoys them, I’m from New York. If we hear that, I’m going to do it 10 times more, so. But yes, now I did have some people say it’s annoying. So, maybe I do it even more now, we’ve been doing it for, I don’t know, over 10 years.

Frank Curzio: Anyway. But, Daniel, a lot going on in the markets. And I guess let’s start with the massive sell off, because it’s been really, really crazy. It’s been extremely painful. We’re seeing some of the best stocks now sell off 40%+. When you see a Netflix, the Meta’s, the largest companies in the world, those that used to be the safe havens, are getting absolutely nailed.

Frank Curzio: And now, everything that was working over the past month or two, which is mining, minerals, safety, you’re looking at utilities, Bitcoin was holding up. You’ve seen a lot of those things get nailed now. We are seeing today a rebound, the market’s strong earnings, but what are your thoughts here? Because we’re seeing pretty solid earnings. Some companies get nailed here, but will earnings be enough to trump inflation, the lockdowns of China, the massive Fed tightening ahead, a lot of these risk priced in? What do you think? Or are earnings going to come back and save the day?

Daniel Creech: Earnings are definitely saving the day. So to answer your question, what’s really moving these markets, obviously earnings and interest rates. We’ll get into some of the bigger tech stock earnings that just had an amazing… I think both of them, Google and Microsoft, had good ones. I think that, to bore you real quickly here. I think the new normal, as we’ve talked about for a while, is you need to get used to… Investors need to contemplate the fact that, all right. Markets are down 10 to 20% give or take whichever industry you want to look at year-to-date. What if they just finish the year at current levels. And you have a year that the market goes down 10, 15%. Now from here for the rest of the year, that means you’re going to have a lot of volatility. We were talking yesterday. I just think, everything goes out.

Daniel Creech: You know, what’s the old saying, Frank, throw the baby out with the bath water. So yesterday and Friday, terrible days, damn near everything went down. We can pat ourselves on the back with one holding that actually went up on earnings, we’ll get to that in a moment. But essentially what you just have to… Here’s the gray area in investing. You have to get used to saying, hey. Even the good stocks are going to go down when everybody’s hitting the sale button. What we want to pay attention to is, what do you pick up at… Where do you allocate money as prices drift lower because what’s going to recover faster than everything else?

Daniel Creech: I don’t have a crystal ball. I’m just trying to say that that’s how I’m thinking through these markets, because it’s easy just to sell and go away. Yeah. To your point, a lot of the stuff that was working just sold off, but I would bet a lot of that stuff that was working outside of strictly reopen plays, will continue to work, like energy, stuff like that. So yeah, just brace yourself for a new normal, and a flat market overall in general.

Frank Curzio: Yeah. I mean, it’s getting to the point where, look… There was a fundamental change when the Fed just reversed course, which we all know now, and that was in November. And now, we’re in an inflationary environment, and we have a fed that’s tightening and taking money out of the system. There’s nothing the Fed could do that they did over the past 10, 12 years, right? Which is, rate zero, buying bonds, always there for us for everything. Now it’s a different market that I think, most investors, especially new investors that have come in over the past 10 years, have not seen before. Where this is ugly, where in a bear market, everything goes down. Just like in a bull market, you could buy companies that are generating $1 million in revenue, merger to scat, go to SPAC, and then the next thing you know, these things fricking take off, and they have $5-10-20 billion valuations. That happens in bull markets.

Frank Curzio: In bear markets, it’s the reverse. Because you see even some of the good names that report, UPS reported good numbers and gone down. I know a lot of companies that reported great numbers last quarter and are down 20% from those highs. So yeah, it’s just when money and leverage is coming out of the market, that’s what happens. So, it’s not just you saying, well, this company reported great earnings. Why is it going down? It’s going down because that fund that owns that stock, also owns a lot of other things on leverage that have gotten murdered, and then they’re forced to sell some of those good names, and that’s what you’re seeing. And then, it results in a capitulation effect. Which, I don’t know if we’re at capitulation, but we are pretty close.

Frank Curzio: I mean, yeah, there’s not a risk in the market right now. You could tell me that we haven’t been talking about, right? But what we’re seeing the effects of higher rates, the housing market too, and mortgage rates going higher. We know the Fed is going to go crazy. It’s got to go to 2.5. They could do it in 3 months, months, 9 months, 12 months, 18 months, whenever they want. It has to get to 3%. So whatever they want to do, the people on TV saying, well they’ll ease and make it easy, it won’t be that… Shouldn’t use the word ease. But, they’ll slow down. It won’t be a big… They have no choice. They have no choice. They have to bring it up, right?

Frank Curzio: So, I know they’re praying and hoping, and I hate that they’re using those words. When you’re at the Fed, praying and hoping, which is crazy. But it seems like a lot of this is getting priced in because of the earnings that you’re seeing. And we can go there, which a good segue. I mean we could start with Google. Google, missed estimates, but overall there was a lot of positives within. It’s down like 3, 4% today, but still down 4% after coming down a lot already. But I saw a lot of pauses, but let’s talk about Google and start there.

Daniel Creech: Yeah. The only thing that stood out to me is the $70 billion buyback. Now, I was going to run a screen and I’m lazy, so I apologize to everybody, it’s very unprofessional. I have no idea how many companies are worth $70 billion. How many companies are going to do $70 billion in sales, just revenue over the life, let alone per year. Couple that with, Frank, they have that in cash. I mean, these tech companies… We’ve talked about the difference between just growth at all cost, and high tech, high flyers, and actual great tech companies.

Daniel Creech: I’m looking at Seeking Alpha, the forward P/E for Google is 20%… Or excuse me, forward P/E is 20. Earnings and everything are growing at what, 20, 23%. Margins were 30%, which is flat year-over-year, which is terrible in a sense. I’m being tongue and cheek there. And they have $70 billion that they’re just going to buy stock back. This is a stock that is sold off. I don’t know when it will return, but I don’t see… I think you can buy the big tech like this and not have fear over the next few years. I think money will flow to these companies as you look for the best place to hide. I’m not saying it can’t move lower, but I didn’t see anything that would jump out at me to… It scratches my head on why it’s 4 or 5% down, I’ll be honest.

Frank Curzio: So, this is a reason why we pay a lot for these search engines and stuff like that and different things, where we have capital IQ and things. So, I’m trying to bring it up as fast as I can. I actually have a screen here, because I’m trying to figure out how many stocks actually have that. Actually have the… So, I’m going to view all of them and see if I get market cap here. But if I had to guess, it’s like less than 50. And I’m just bringing up the screen because I could usually do this pretty quick, but I think I hit a wrong link here, but-

Daniel Creech: And real quick, while you’re looking at that, interrupt me whenever. But the bullet points here, Google advertising was up 22% year over year. And remember, these aren’t easy comparables. I mean, it’s not like Google, hasn’t had a great last couple years with the coronavirus and all that kind of stuff in lockdowns. I know YouTube missed a little bit, but revenue, YouTube ads were still up 15%. The cloud grew 45%. I mean, these numbers are almost just laughable. When you think of, what, the market cap is 1.5, 1.7 trillion?

Frank Curzio: Yeah.

Daniel Creech: These are fantastic business models. You know I don’t agree with a lot of stuff they do and all that, but from a pure stance of businesses, these are great. And I, like I said. If you have any type of long-term outlook, I don’t see a problem with Google here. That’s just me. But if you bought it two months ago, you’re yelling at me because it was almost 3,000 a share, now it’s 2,300.

Frank Curzio: Yeah. I mean there’s like 100, 100 companies, 70.

Daniel Creech: Yeah. I mean, they’re just nuts. Them and Microsoft, Apple, they’re all in just different leagues when they have that kind of cash, that kind of earnings power. It’s incredible.

Frank Curzio: It really is incredible. And what stood out to me, I mean you have… One, there’s a few things. So I mean, Google advertising, which is their core business, was up tremendously. That’s up 22%, which is a great, great number. $54 billion for the quarter, just for advertising. YouTube ads, YouTube got crushed. Not crushed, it’s up 50% year to year, but it missed by I think over a billion dollars it missed by, which is really big. And you’re looking at that stock repurchase, we just used $70 billion, operating margin’s flat. And you know, their airings missed estimates and their guidance was okay.

Frank Curzio: But for me, you have to look at certain things. And we talked about this with Netflix. Because if Netflix, with Russia operations, it’s really cool for a company to say, we hate Russia. We’re not going to do business with them. Okay. That’s cool. That’s cool from, ethical standpoint, it makes you feel good about U.S…. It’s terrible for investors, right? Because now, it’s not being factored in earnings. And it’s not. And you saw that with Netflix. Because Netflix was supposed to add $2 million, and they wind up losing. Which is terrible. But if they included Russia, because they decided not do business with Russia, it would’ve been a positive net ad, which would’ve resulted in that stock going down 15% instead of 35, 40%, which it’s down.

Frank Curzio: Now, you’re looking at Google as well, blaming, hey. Russia operations that hurt us. Again that’s one of the things. The YouTube thing is… Listen, that’s TikTok. And also, YouTube is an app, right? So yes, it’s Google and Android, and I get it. But most people, 50% are talking about this yesterday, who said around 50% of people own iPhones, and their median income is $80,000, which is a lot higher, 40% higher than the average.

Frank Curzio: So when it comes to advertisers, and that market is great, but a lot of people have iPhones in America. And when you do, that app is subject to Apple’s private policies, that you have to check a box and stuff like that. So you’re seeing that impact the YouTube portion of the business. But also, the Russia operations, keep close eye on that. Because a lot of companies that said, hey, we’re not doing business in Russia. And you might think, well Russia is such a small part of it. Russia… And we learned this from Visa, which reported good numbers, that stock’s up 10%, which you know they blow out the numbers. But they are the second largest company in terms of credit card usage. I didn’t know that. That’s pretty amazing. But you’re shutting down operations in Russia, it’s going to impact.

Frank Curzio: And you’re talking about impacting where Microsoft… You know how much Daniel had in Microsoft? The Russia operations shutting down? One cent.

Daniel Creech: One penny.

Frank Curzio: One penny, that was it. That’s it. So, if you’re looking at Google, obviously bigger, if you’re looking at, at Netflix, bigger. So, a lot of these companies, especially streaming, right? They just want names on their list. This way they could say we have $150 million new people. They’re not going to look at average revenues like Disney, which is like $4 compared to… Right? Nobody cares. Compared to $14, $15 for their competitors. But when you’re losing rush operations, you’re going to lose a lot of subscribers, even though it’s not a lot of revenue. And that’s a big number when it comes to streaming services and a lot of other places. So you have to keep an eye on that when you’re at a very expensive level in the market, when stocks are trading at premiums, which we’ve seen this come down a lot. Where we’re seeing in different market conditions where it’s a bear market, this is going to result in companies missing estimates, and I don’t know if that’s really factored in. Because it’s not factored in with Google based on the estimates because nobody had Google missing.

Frank Curzio: But their core business is great. Their core business is going to explode because now when you’re looking for advertisers, they only care how much they could track, and before Apple came out with private policies, they were allowed to sit in your bedroom and basically know everything that your kid’s doing, everything, all day, had access to everything, your lives, everything. And then Apple said, okay, no. Let them check off a box, a lot of people will check off that box and let people just track them, whatever they want to do.

Frank Curzio: Google’s different. They have their own operating system. So you can’t… If you going to go to Facebook, Facebook is relying on that app, right? And that’s going to impact Apple. You see Snap. You’re looking at all these companies, Google now is the platform that everybody’s going to go to because the advertisers want to be up your you-know-what and know everything you do, no privacy issues because that’s how they generate the largest return on ad spend. Because they know exactly what you’re doing, when you buy, when you’re likely do everything, travel, whatever. That’s going to result in a lot of more business going to Google.

Frank Curzio: So rush operations hurt, YouTube came down more than expected, a lot of that is TikTok as well, which is impacting a lot of these social media companies. But those are the biggest takeaways for Google where I think it’s mostly a buy here. However, it seems like YouTube was a surprise, which it shouldn’t have been a surprise, and the Russia operations were a surprise, which tells you that Russia and a lot of these companies… They’re reporting earnings like crazy over the next couple weeks, remember that. Any of these companies that have exposure to Russia, take a look because the analysts are behind on this and they’re not including that in their estimate, and that’s a result… That’s the only number that matters. Whatever numbers are on the screen. You don’t have to know how much it grew, how much it… It’s the analysts’ estimates that are on TV. When they say they beat this an assessment or they didn’t beat, and they didn’t beat because a lot had to do with Russia, which the analysts should have got right, but they didn’t.

Daniel Creech: Yeah. Absolutely. And they even warned… And good for them. Management even warned, hey, quarter two results will show more of the Russia effect on the activities. The thing that stood out for me from the conference call, a couple of highlights were, the hybrid work is here to stay and the company has products for that trend. I say that because that is stating the obvious, hybrid work is going to be around to stay.

Daniel Creech: But think about how that, and we can talk about Microsoft Hewlett-Packard, Dell, all these other companies, semiconductors. If you have this hybrid work, either you’re sharing products, computers, and things, or you’re buying multiple ones, which means the recycle every couple of years. That’s a steady demand for that home office and actual office, and I think that’s pretty neat on how they kind of target that and explain that. So, you can take that as you often say, hey when you read the Wall Street Journal or newspaper, don’t just think about what stock they’re talking about, think of the industry, think of the sector. So, that hybrid work is going to be something that you can look to invest in and take opportunities in for years to come.

Frank Curzio: Now let’s turn on Microsoft, which is, I mean, you’re not going to find too many companies that are going to report a better quarter than they just reported. And that stock is down as well, right? And this is what happens in bear markets. A lot of the good names get hit. So $100 million-

Daniel Creech: Microsoft’s up. It popped 5%.

Frank Curzio: No, no, but it’s down from its high, right?

Daniel Creech: Yeah. Yeah.

Frank Curzio: And it went up on this, right? So I think Chipotle’s up, you’re looking at Google’s down, Boeing’s getting crushed today, but Microsoft’s one of the ones that are up today, but still it’s down a lot from its highs. Now the number of deals, which is their cloud platform, 100 million+, right? That double year over year. If you look at… I mean, there wasn’t any negatives, there was zero negatives. It’s not like anything happened that was negative.

Frank Curzio: You look at… I mean even Office 365, LinkedIn, record engagement, taking market share in gaming for two straight quarters. Where’d that come from? So, you’re looking at market share gains and PCs, gaming consoles. Edge browser is taking market share? You’re even… Edge and LinkedIn. I mean, and PCs, really, the Surface? I mean, you’re looking at Microsoft’s products saying, these are the three… That are taking market share right now.

Frank Curzio: And then let’s get to the cloud, which is growing 26% to $19 billion. To put that in perspective, we have Google doing… What was it, a couple billion a year? So, Google cloud revenue is $5.8 billion. You’re looking at Microsoft is $19 billion just to put in perspective, this is a high margin business. I don’t know why Google is doing that much in cloud and showing and losing a billion a year, which is weird. I’d like to look at the numbers a little bit more. I understand you’re growing, but this is an incredibly high margin business, but Microsoft has it right, amazon has it right. And it’s growing incredibly, 26%.

Frank Curzio: Strong outlook. Again, the presence of Russia was nothing, impacted earnings by 1%. $20 billion in free cash flow. Are you kidding me? I mean, that’s what we should run a screen. How many companies have $20 billion more?

Daniel Creech: Right.

Frank Curzio: Or they have $100 billion in cash on the balance sheet, even that. $100 billion in cash on a balance sheet, which allows them to buy almost any company in the S&P 500 outside the top 40, 50 maybe, 60? So, when I’m looking at these numbers and also they increased their head count by 20% year-over-year, mostly for cloud engineers and increasing their sales force and stuff. But overall, I mean, holy cow, this is an amazing quarter.

Daniel Creech: Yeah. And the gaming, like I said, the crazy thing is when you’re comparing to tough previous quarters, so the tough comparables year-over-year, gaming to continue to do well because the lockdowns and all that pull forward there. I mean, Take-Two, we’ve talked about a lot in the past. Activision, which got bought out. But I mean, just to see the growth and the margins on that side and the continued of, just a sticky product.

Daniel Creech: I mean, when people buy these games, Call Of Duty, Xboxes, whatever, that’s just incredible. And that also plays into the bigger, gaming is kind of the future, and all kinds of, from cryptos to metaverse and all that stuff. But yeah, when you have massive corporations with tough comparables, and they still put up amazing numbers, here’s the gray area.

Daniel Creech: You have amazing companies with returning on capital, and yet, their stocks are 20 to 30% off previous highs. Doesn’t mean it’s terrible, it just means to reallocate your thinking and expectations, because like you said, we’re in more of a bear market, not a bull market, and just pay attention to that. So, you got to continue to be patient, you can buy these down here, in my opinion, but again. Unless you’re trading, you want to know that you’re going to withhold these for a while, in my opinion. Several quarters, a couple years. Because they’re going to ebb and flow, but as long as the core numbers continue to be positive… Remember, at some point we’re going to go come… Everything is going to be moving together down, and then things are going to matter. And that separation will be good for the leaders.

Frank Curzio: And that’s a good segue. So, how do we see that separation? And people are like, well, all these tech companies are getting nailed, and sure it’s going higher, they’re not that good. If you’re looking at tech companies that usually have higher margins, especially software companies where, when you see things get difficult, it’s not as easy for them to cut costs where it is for manufacturing companies to cut costs tremendously, right? So, you see these companies get hurt. You see revenue get hit. There’s sales and advertising, percentage of revenue, a percentage of sales comes down. Less marketing, that’s even less profits. But you see why the technology companies are getting hit, but you’re sitting there going, okay. Which one should I buy? Netflix, clearly broken. Right? I got that one wrong.

Frank Curzio: But when you’re… I’m looking right now. Because what you should be doing right now with these stocks down where I know a lot of you just selling and asking questions later, but you should be looking. Because all the time we look back in the past, we’re like, holy shit, man. In March 2020, look where I could have bought this stock. In 2004, look where I could have bought this stock. In 2010, March 2010, look where I could have bought this stock where 20% of S&P 500 is trading in the single digits. You always say that during these times, because you never think to buy. Right now, you should be thinking about what I should go after that I’m going to hold for the next couple of years. And here’s a way that I think you could do it.

Frank Curzio: Because you have a lot of people saying, so many stocks are great right now. You should buy Nvidia, you should buy Disney, you should buy Microsoft. Okay? Yes. Different industries, but hear me out. Because they’re all in tech and they all trade at a growth multiple, even right now. But when you look at Microsoft is trading at 25 times earnings per share, expect to grow earnings by 15% annually the next two years. Every single segment is growing, they’re on fire with everything. $20 billion in free cash flow for the quarter, over $100 billion cash on its balance sheet, hiring employees, pedal to the metal, everything’s great.

Frank Curzio: Yet yesterday, I heard three different people say, you should be buying Disney here on this pullback. Disney right now, after being down, 52-week low down 35%, is trading at the same multiple, 25 times to earnings. Except, it has $40 billion in net debt. Earnings are not going back to pre-COVID levels until 2025. They fully transitioned their business to streaming, which everybody applauded them for. They did it not because it was revolution, they did it because they had to. Their whole entire business was closed across the board with Disney when COVID happened, they had to do something. It’s, let’s get into streaming without even thinking how much it costs or how difficult that business is, which they’re finding out now because it’s a saturated business with no pricing power anymore.

Frank Curzio: And that’s a big part of your business where you say you’re going to be spending $30 billion annual in new content, you have to spend that to compete with Netflix and Discovery, Time Warner, who have the cash, who are doing that. And more importantly is, you don’t have those special tax breaks anymore. Politics is a factor right now. I mean with families and stuff like that, but you’re looking at… Whatever. Whatever side you’re on, I won’t even go there with what’s going on in Florida at the back and forth, but it is hurting Disney. Right? Because they’re supposed to be supporting families, and a lot of families don’t support a lot of the stuff in politics that’s going on right now. Anyway, and the woke stuff.

Frank Curzio: But when I take all of that into effect, do you want to buy Disney here 25 times forward earnings, with $40 billion in net debt. Streaming, obviously you saw at Netflix with the biggest and the best in industry struggling, you know it’s going to happen with Disney as well. Because their average revenue per user is 60% lower than Netflix. So, they’re going to add names because they know people like that metric, but eventually you have to generate cash flow. But when you’re looking at a couple of $100 billion in cash on a balance sheet compared to where Disney is, which one do you want to own?

Frank Curzio: And that’s how you should be looking at these businesses. Because a lot of people are like, you should buy this, you should buy that. But you’re seeing in a bear market, even the great… In a bull market, the shit usually goes much, much higher than the good names. That’s what happens in a bull market. In a bear market, you’re going to see the crappy names go down, but also the good names go down. And we’re seeing a lot of good names go down, and now you have your choice of which names you want to buy. That’s how you have to look at it. And Microsoft is clearly a much better buy here, with much more higher growth potential than it is for Disney, who’s struggling, who would have to take out enormous amount of debt to acquire companies. Yes, they’re going to see their business when it comes to their parks do better, but still they went all in on streaming, which is their core business right now, and you’re seeing them struggle.

Frank Curzio: But that’s how you want to look at different stocks. That’s how you should be analyzing names right now, which companies are getting it done, which ones are not. And which ones have strong growth over the next couple of years, and I really can’t say that for Disney, but I know I could say that for Microsoft, I could probably say that for Google. You’d probably say that for Nvidia as well, but that was a super, super, super expensive stock which has got nailed along with the Ambarellas, the AMDs and stuff like that. Good names, but they had crazy valuations. So, that’s how I look at it. I mean, for me, I don’t know if it’s different for you, Dan.

Daniel Creech: No, that makes total sense. And it’s not, I mean we don’t want to act like we’re ignoring any volatility or losses or hits, but that’s the hard thing about investing. You have to have that mindset in saying, hey, the market is essentially wrong. Everything is getting sold off here, it shouldn’t be, here’s why. And as long as that thesis remains intact, you can continue to hold or buy over the long-term. But right now, nobody cares about much of that. Unless you bought Microsoft yesterday, you’re down. You’re up 5% if you bought it yesterday right ahead of earnings, if you bought it in the last few months, you’re down a lot.

Daniel Creech: And all this can kind of go on deaf ears because it’s like, yeah but look at the current price. And that’s the thing. Yeah, that happens. That’s part of it, but that’s why you got to know what you own, and it’s good to think about, hey think in terms of valuations compared to everything else. And if you do that, it makes you understand and keep emotions out of it and therefore your longer term results will be much, much better. And if you don’t believe me, just hold on for a little bit because prime time will prove that. It’s not because I say so, it’s because that’s just the way it works, you know?

Frank Curzio: No. And I hear you and you. Just one more company… Well, we’ll go over a couple of them, but another big company I reported was Visa. I mean, if you think that we’re it an incredibly bear market and everything’s absolutely horrible, Visa’s a good indication of consumer spending, right? And you’re seeing a massive quarter. I mean, the numbers that they put up are insane. They bought the number… $1.79 per share, it’s 14 cents better. Revenues grew 25% year over year. Revenue grew 25% year over year. And these comparisons are going to get tougher and tougher, because we’re going against COVID levels and stuff. But now, the economy really started booming so, we are looking a year back, and pretty soon that’s going to include November and you’re going to see how the market’s coming down and consumers are thinking differently. But man, these numbers are incredible.

Frank Curzio: Payment volumes for the three months increased 20% over the prior year. There’s one thing I need to research because they reported this morning, that I need to research. Because Daniel would you, and I don’t know if you read this, you probably did. Because we have access to all the news sites and stuff like that come out that give us briefings and stuff. You’re looking at other companies where Europe, Eastern Europe, it hurt almost every company. To, very little extent for Microsoft, a lot for Google, you’re seeing it with Netflix and a lot of these companies. Wouldn’t you think anyone who’s doing business in Europe right now is struggling? I mean, inflation’s through the roof, tough conditions on war over there. Cross border volume, right? So, this is cross border volume, which drives their international transaction revenues, increased 47% on a constant dollar basis for the three months ending March 31st, 2022.

Frank Curzio: So cross border. Okay so, if you’re looking at that number. And cross border… Don’t know how much that… Look, cross border is not U.S. right. So, let’s see exactly where it… But that number just stands out to me. And I want to see why. That’s going to tell you what countries are doing good. Is it excluding all of Europe, just as part of Europe, what areas. But for that number to come in where it came in, I’m just curious to see. That makes me want to dig a little deeper. And that’s what I do when I look at earnings calls where, we have bullets and that all these services provide you.

Frank Curzio: For me, I look at that as kind of like a cliff note version and say, okay, wait a minute. This number doesn’t make sense. Or why is this? And then, I’ll look at this number and then that can lead me to so many different ideas, seeing which countries are doing good. I mean, is it some of Bitcoin payments? I want to listen to the call, because now they’re into Bitcoin and Bitcoin cards and stuff. But you know, Visa just bought the numbers, great call.

Frank Curzio: But that doesn’t happen in a complete bear market, Daniel. Where you’re seeing one of the largest consumer based companies that track spending blow out the numbers here when we’re anticipating this massive, massive bear market. I’m not saying things are good, you know I’m not saying that, and I didn’t say things are good. We’re down a lot, we’re down a ton. But when you see a couple like that, you would expect Visa, MasterCard, even UPS to report weaker than expected numbers. That’s not happening.

Daniel Creech: Right.

Frank Curzio: Right. So it’s not… What I’m saying is it’s not totally horrible, oh my God, you’re dead. You just have to find the right pockets. And that’s getting even harder, I know. Because you thought you had the right pockets where maybe you were in uranium, uranium’s down 20% all of a sudden. And you’re in mining, and now gold’s selling off, and utility companies are selling off, and energy companies are selling off. These are supposed to be those safe havens or pockets that were doing well. But just comments like these, I want to dig a little further because it’s probably going to lead to more ideas, but that was surprise to me.

Daniel Creech: Yeah. It set me up to fail here, leading me into thinking, oh, you probably read this because we have access. I didn’t read anything on Visa. I just saw the result and the stock popped. What I would look at in the coming transcript is if they’re warning about anything on consumer spending, like you said. But that’s what, hopefully people can take away stuff like this when you… And let me tell you the easiest cheating way to find stuff like this is fun. Just pull up a transcript or an SEC filing which is free, and use the control find and start searching for inflation or debts or risks or whatever.

Daniel Creech: To your point, the cross border payments. You can go sift through that, see every time management comments on it or whatever, and then go from there. Yeah. I would look, I would just… I think it’s great to see it up 8%. A lot of that’s probably overdone so some of that’s just a relief rally. The top and bottom lines look great. And again, I would just look for what are they warning about if anything, because you’re right. Right now, the market is pricing in the last couple of days and these 2 to 3% moves on indices are pricing in just dark, dark days ahead. And yeah, it’s not going to be great, but just don’t hit the panic button or capitulation yet, I guess.

Frank Curzio: Yeah. And other earnings that came out and said, look, there’s a ton of companies reporting. I’m going to be interested and sell more than Dan’s going to be interested, and then we compare our notes. But Chubb is one of the ones that you looked at that you said is very good, right? Insurance, you’re very into.

Daniel Creech: Yeah that’s an old pick in CRA. It’s a half position that’s doing real well for us. But you just want to think in terms of what businesses have pricing power, operating leverage and things like that. I’ve talked about Berkshire Hathaway through its railroads and insurance businesses. They’re just good for pricing. Chubb reported earnings yesterday. They reported record underwriting income for the quarter, record property and casualty combined ratio. All you need to know is that under a hundred is good, the lower the better. They reported a combined ratio of 84.3%. That is crazy low. These guys are conglomerates. And it’s not a coincidence, Frank. I was looking through Fidelity for other reasons. But Fidelity has an article about 10 best stocks for rising interest rates. And this is from earlier in April. The point of this is that they have two asset managers on this, and you guys can go look it up I’m not going to tell you.

Daniel Creech: But the reason I’m talking about this is while they don’t have Chubb on here, they have Cincinnati Financial and Travelers, which are other property and casualty insurance. My point is, we’ve to talked about this a lot in Curzio Research Advisory, these are some of the best boring businesses that you want to own, and they’re going to absolutely shine in harder times like this, and it’s going to be amazing. That is going to continue to compound money. And we’ll probably look to add to that in CRA, even though it’s up tremendously. Not that there’s no risk, it’s just when you have long runways like this in great operating companies, you want to buy those. And that’s not going to be talked about on CNBC a whole lot, and as an investor, you love that. You just want to kind of live under the radar and compound your money over time.

Frank Curzio: And we got like a minute left here. So really, two other companies, Boeing we sold out of-

Daniel Creech: Boy thank goodness. I do not, I am so tired of writing about that, Frank, thank you.

Frank Curzio: I feel bad about Boeing. I mean just the negatives keep piling up, man. They’re going to have massive, massive orders. We’re going to return to massive traveling which we’re seeing with the airlines, but it’s just one thing after another, where China was a big girl cows for the max and now they’re closed again with the lockdowns, and it’s COVID, then Omicron, then Delta.

Frank Curzio: Again, it just keeps going and going and going, and then with those crashes and everything. So, just hold up a little bit, but that starts coming down to levels that I think if you have a two-, three-year outlook, even a two-year outlook, I think it’s going to explode. But I’m glad we did sell it because… And we did keep Delta, which did very, very well and have reported great earnings. And also we have Arch Coal, which Coal is great.

Frank Curzio: And again, I’d love to get into a whole segment here because coal is the worst thing in the world, it’s so terrible, it’s horrible. Just like Poland, say we can’t use coal, no, never use coal again. That’s it, we’re not going to produce it, nothing. But yet, they import the shit out of it from China, right? So yeah, it’s the same thing when you’re looking at climate change guys, it’s the same thing. So China’s like, all right, if no one wants to produce coal, we’ll produce coal. And we’ll give it to everybody because everybody wants it because it’s cheap and it’s going to increase your margin of profit, that’s what everybody cares about. But you know, this whole phase out thing, which is phasing out, the amount the business Arch is doing. And again, they’re not going to promote, they’re not allowed to promote probably because the whole world, climate change will get on you and everything.

Frank Curzio: But man, coal is a booming, booming business right now. Natural gas prices going through the roof, you got Russia shutting off what is it, to Poland and wherever. You’re seeing energy prices higher and companies and electricity companies, everyone are going to use alternatives, which is why you saw uranium spike tremendously and yes, it did come down a little bit, but still tremendously. And now, coal is back and we got into Arch, a small position to start because it was volatile but man things are really starting to take off for us.

Daniel Creech: Yeah, and we should talk about this more in a later podcast, but for investors out there, go read through their press release. They reported record margins, record earnings, and from a business, that is going to have forced lack of under investment for the product that is going to be in demand. I understand all managements are biased and kind of pro cheerleader as they should be. I mean, you should be proud of Curzio Research. I work here, I should be, you want to promote that to a certain extent. So, take that with a grain of salt.

Daniel Creech: But you will not find a better plan in what they say, they need to continue following through, but you won’t find a better plan on an industry that’s going to have under investment, has political headwinds, yet has going to print cash in the way they’re going to reward shareholders. So, we’ll talk about that more, but everything they said, that’s why it went up 20% yesterday when the market sold off hard and it’s up another 5% today.

Frank Curzio: Yeah.

Daniel Creech: That’s not a coincidence people. And it’s not being talked about on CNBC, which is a good thing. Ignore those guys most of the time, they’re good every once in a while, and focus on stuff that works.

Frank Curzio: Yeah. Makes sense. All right guys. So that’s it for us, Dan. Thanks so much for stopping by, appreciate it. Someone wants to get in touch with you and your comments-

Daniel Creech: I needed coffee. I was going to wait for that. Yeah, daniel@curzioresearch.com.

Frank Curzio: Okay. Forget it all the time.

Daniel Creech: Cheers.

Frank Curzio: Hey guys, that’s it for me, frank@curzioresearch.com. We’re here for you. I know the market is difficult. You can ask us questions and just watching Microsoft with a good quarter, it’s up to 6, 7% today. It’s really good. And hopefully, we see some strong earnings, we’re just seeing that Zach bounced back after one of the most horrible, horrible downturns. Really, really terrible. I think it’s one of worst starts to the NASDAQ since 2008, I think I heard, which is amazing. But we are seeing a bounce back, earnings pretty good. And I’m going to cover that a lot of that tomorrow with the one and only Andrew Horowitz, the interview tomorrow, so definitely stay tuned. I’ll see you guys then. Take care.

Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money, and your responsibility.

Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His weekly Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 9 million times.

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