Marc Lichtenfeld is an income investment specialist. He literally wrote the book on the topic: Get Rich with Dividends: A Proven System for Earning Double-Digit Returns. On this episode, Marc shares his methodology for finding the best income investments that also lower risk—including MLPs, REITs, ETFs, dividend stocks, and even bonds. He also shares a couple of his favorite ideas right now… and some high-dividend companies to avoid [18:22].
Over half of the companies in the S&P 500 have reported third quarter earnings. In my educational segment, I break down my thoughts on the earnings season—including some names I’d buy… or sell [47:43].
- Rant: Boeing Congressional hearing [00:30]
- Guest: Marc Lichtenfeld, author of Get Rich with Dividends [18:22]
- Educational segment: Breaking down third quarter earnings season [47:43]
Wall Street Unplugged | 693
The best method for finding high yields—while lowering risk
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 out there? It’s October 30th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and, tell you what’s really moving these markets.
Frank Curzio: So watching the Boeing Congressional Hearing yesterday and also today, two days broadcasting live on CNBC because there really wasn’t a lot going on, especially yesterday, Tuesday, in terms of earnings, economic data. And then after the close, a lot of companies reported and Wednesday they reported. So they don’t have this hearing all day like they did on Tuesday. But I was just watching it and I usually make fun of these hearings. Look at Google, the Google CEO was interviewed, it was December of this year and they talked about privacy issues and Representative Steven King from Iowa, he asked a question, he’s like, “How does hateful information about me show up on a seven year olds iPhone?” Yeah. And then you had Representative Zoe Lofgren from California asked, “How does search work?” Like, “How does search work?”
Frank Curzio: I mean, just do a little bit of research on the company when you’re going there. Just do a little bit, but it’s usually a complete shit show. And it’s hilarious because … I mean, you gave a go with Zuckerberg, right? I mean, Zuckerberg was great. I’m talking about the recent LIBRA hearings, but before when they were going over privacy issues, Senator Chuck Grassley from Iowa said, “Mr. Zuckerberg a magazine I recently opened, came with a floppy disk, offered me 30 free hours of something called America Online. Is that the same as Facebook?” Actually asked that question. Orrin Hatch from Utah asked, “How do you sustain a business model in which users don’t pay for your service?” And this is what the testimony, this is in the testimony, they’re asking him, and Zuckerberg sarcastically, but not sarcastically said, “We sell ads and we make billions of dollars doing that.”
Frank Curzio: Yet Buddy Carter, Representative from Georgia asked, “Did you know the Motion Picture Association of America is having problems with privacy and this is challenging their existence?” Zuckerberg replied again, little bit sarcastically, “I believe piracy has been an issue for a very long time, even before Facebook was created.” And when you listen to these, they’re actually entertaining and it’s fun. So it’s easy to make fun of. You could Google stories and everything, but when you’re looking at these senators and Congress, most of them have a background in law. They’re lawyers, they know very little about technology and they never will. So most of the time they just show up to these hearings and get some air time, got to do that grandstanding, yell at whoever they have to yell at, trash whoever they’re interviewing, they don’t do any research on the company. And that’s why it’s funny. You can make fun these guys, because all this stuff, 24 hour news services you see now.
Frank Curzio: 15 years ago, 20 years ago, and before that you’d never see, I mean CSPAN maybe, but you never really saw these hearings. You never really saw what’s going on. Now it’s every place, especially when they ask questions like this. Now with Boeing, it’s a little different. And I was watching this thing saying, “Okay, I want to be entertained and make fun of it.” But they were asking CEO, Dennis Muilenburg some really good questions, like, “Did you know there was a problem before the crashes? Who you contact or what authorities do you go to when you learned that was a problem?” Pretty simple questions, and yet Muilenburg would sidestep a lot of these basic questions, he just kept apologizing and ever saying, “We have to do a better job.” And it got to the point where the senators are like , “I know, I know you say, ‘We have to do a better job.’ But answer the question.”
Frank Curzio: We see Google, Facebook on the Hill getting grilled on privacy issues and not just Google and Facebook. Well, credit card companies and banks were hacked. They have congressional hearings about that, bringing up the CEOs. Usually 90% of the time, these events turn out to be great buying opportunities, because the world already knows everything. If the politicians are talking about it, everything’s factored in, because they’re the last to know everything. But now all the risks are out there. We all know them as investors. The senators are highlighting stuff that pretty much everyone knows about already and just keeps yelling at the pew, kind of what they’re doing with Boeing, but usually this creates buying opportunities for every stock when they’re on the Hill. You look at Facebook, look at Google. You look at Capital One, you look at JP Morgan, the banks at all time highs, a lot of these stock, well, pretty close, 52 week high.
Frank Curzio: Some of them are at all time highs like JP Morgan. I love the fact with Google, again they were interviewed December, 2018. If you do a search on this event on Google, almost every story comes up saying, “Congress blows hearing with Google. Congress asked ridiculous questions. Senators have absolutely no clue.” I’m sure Google has something to do with that since they control all the search on their site. There’s nothing that says Google was wrong anyway, but if you Google it. I thought that was funny. But getting back to the point, most stocks are buys post congressional hearings. I’m not sure that’s the case with Boeing. I mean you have a CEO, can’t answer simple questions. Talking pilots, how they’re sending instant messages suggesting they have problems with the Max systems, the 737 Max, not just systems but with the software, but in these instant messages, they were pressured not to say anything publicly since it’s going to result in more stimulating training for pilots, which is very, very expensive.
Frank Curzio: It’s going to increase costs dramatically for Boeing. I can’t get the CEO to sidestep it. Did the CEO of Boeing know about these problems ahead of time, he still couldn’t answer, even though he was asked about 20 times? So I ask,, why don’t you make the FAA, the final authority when it comes to safety? This way, they would be in the hot seat today instead of you. They were talking to the CEO of Boeing, which makes sense. Boeing has final say on, “Hey, everything’s okay. We’re good.” Yes, they go through the FAA and stuff like … You should have them as the last approval and if they get it wrong, it’s not Boeing’s fault, it’s the FAA, wasn’t the case. But that was a good question. And when I look at this, I thought most of the risk was in the rear-view mirror, but after these hearings, I think we’re more like the fourth/fifth inning than the eighth. And look, guys, I know Boeing well, I visited their facilities in Everett, Washington, a few years ago.
Frank Curzio: I know everything about the 737 Max. I recommend a company’s based on this, the suppliers that did very, very well in my portfolio, Curzio Venture Opportunities. It’s the biggest driver of sales to the company by far. In fact, it’s the fastest selling plane in the company’s history. More than 5,000 orders coming in from over 100 customers worldwide. So if you go to Boeing right now and say, “Hey, I want to order 20 of these Max planes.” they’re going to say, “Great, thank you for your order. Billion dollars,” whatever it costs, “you’ll get your first plane in five to six years.” That’s how long that backlog is. And this one plane accounts for 80% of their backlog, since Boeing manufactures five planes, this one plane is 80% of their backlog. And when I look at Boeing, it’s now trading at 17 times forward earnings, which is in line with the market, used to trade at premium before all this happened. But these are projected earnings.
Frank Curzio: I mean these earnings are based on the sales that expect to be filled for 737 Max, which customers are having second thoughts since they could buy a similar plane with similar specs from Airbus and that’s called the Neo Line. It’s not apples to apples comparison, but fuel efficiency, the Neo is a little bit larger. Again, I’ve done research on both of these planes, but it is similar. If you had to say get a grade on everything, on everything together, the Max is probably a little bit better than Neo, that’s why they’ve got tons of orders. But Airbus is getting tons of orders now for Neo. But for me, watching the hearings, I was very surprised to see so many senators on the ball here. I’m so used to this being a complete shit show that they had no idea about the company they’re talking about, they’re like, “Facebook, how do you make money?”. “What is search?” They asked Google, “Hey, what is search?” Like they never search anything on Google? Come on, come on.
Frank Curzio: I know some of these guys are like 95 years old, but come on. Your job is to do the research on the company, especially if you’ve got to question them and yell at them and do grandstanding, at least know what you’re talking about. Come on, put like five minutes in, Google Google to see what they do. It’s not too hard. But it’s nice to see so many senators really on the ball with their questions and you know what? They should be since people died, because of this misstep. I can’t believe I’m saying this, but Senator Ted Cruz, great job in bringing up the instant messages, which were recently released where it was a senior Boeing pilot. He told a colleague, he unknowingly lied to regulators. This what I said earlier so Muilenburg, CEO, said he just learned about these details of this exchange recently, and Cruz fired back. I mean, he’s like, “How is that possible? You’re the CEO, the buck stops with you and how did your team not put this out in front of you? Run with that hair on fire saying, ‘We got a real problem here.'”
Frank Curzio: And he started yelling at him, and it was emotional. And to me it wasn’t grandstanding. It was, “How did you not know about this? Are you kidding me?” But it’s just cool to see Democrats, Republicans on the same page here. Not grandstanding, but trying to find out if this could have been avoided and what’s Boeing doing right now that makes sure a problem like this doesn’t happen in the future, because this isn’t a credit card company getting hacked here, it’s not a bank, it’s not privacy issues where … There’s obviously a big problem that needs fixing. When Boeing gets this wrong, innocent people die. This is a major problem. But, when I look at Boeing right now, and I’ve done a pretty good job recommending this stock, telling you what to do with it, telling you to avoid this name. Shortly after these crashes occurred, I got a lot of emails even from pilot’s great stuff saying, “They’ll figure it out.” This is their biggest plane. This was a big deal. I knew it was to be a longterm process. I get it.
Frank Curzio: If you look at the Max, I mean they halted manufacturing the Max. I knew that would hurt Boeing’s bottom-line, since again, it’s by far the biggest selling plane, not just today, but in the history of the company. About two months ago, six weeks ago, I said, “Hey, it’s time to start looking at this stock as most of the risk was priced in.” And Boeing is slightly since then. And I really thought most of the risks was priced in. But after these hearings, the CEO couldn’t answer a lot of these simple questions and he was nervous up there. You see his face, at every question he was like, “Well, we got to do a better job. We take full responsibility.” We know that. Answer the question, did you know about this? If you did, how come you didn’t do anything about it? I mean, I don’t know who was prepping that CEO, they didn’t do a good job though, because he looked very, very shaky up there and he couldn’t answer simple questions.
Frank Curzio: He couldn’t even pivot. He wasn’t even able to pivot the right way, which is, every single senator, all they do is pivot all the time. None of them asked the question. They never ask a question, yes or no. They always pivot to something else and something else that’s greater. But usually CEOs are prepped on stuff like that. But when I look at this after the hearings, and guys always be willing to change your opinion if the facts change. You don’t have to be bullish forever on whatever goal because you believe in something. Well gold is pretty much tracking … Well, it is, I wouldn’t say correlated but negative correlated to stocks. If stocks go higher, gold goes lower and stocks look like they’re going higher. So if you’re a gold investor, be careful, gold is probably going to come down more and stocks, probably going to get further with interest rates being lowered, the election coming up, Trump’s gauge for the economy, the S&P 500, he’s going to do everything he can to prop up these stock prices.
Frank Curzio: You know that going in, you see it, whether you’re a bear or a bull, those are facts, right? You know it’s going to happen. But with Boeing it is too much risk, too much uncertainty that is not going away anytime soon. And there had been a few cancel orders, but more important, there’ve been very few new orders to the Max since the crash took place over a year ago. Very few. Now there will be a lot more cancellations if Airbus didn’t have a super long backlog of its own for the Neo. But if I was Airbus, I mean this should have been in the process six months ago, nine months ago, I would start adding capacity as quick as possible. Even if it takes a few years because Boeing, at least the CEO, I mean they’re on full tilt here. I don’t think they get it, and one more mistake, God forbid, one more crash or if have one more problem with their computer systems and more delays, it’s going to result in tons of cancellations.
Frank Curzio: It hasn’t yet because there’s no other alternative and when they go to Airbus, they’re like, “Well, you’re probably not going to get your planes for seven years.” Well do something about that, increase capacity. One of your competitors is struggling right now and these guys, you have hundreds of customers willing to spend billions if not tens of billions of dollars as an alternative. Airbus figure that out. I know how long your backlog is. I know a lot of people buy the Neo in place of the max, but this is a chance for you to take incredible market share right now and that’s going to happen, if this continues to get delayed, which it looks like it will. They said, “Early next year everything will be fine.” That’s what we heard for the last six months and listening to these guys, it seems like they have no clue. So I wouldn’t be buying Boeing even though 90% of the time when you see companies… Facebook, Google, where they have these hearings, it’s a buying opportunity.
Frank Curzio: Both of these stocks went higher. Be careful of Boeing here. You just happened to be listening to a lot of that call. You can read about it. Everyone’s talk about Wall Street Journal, Post, wherever, and let’s see how he handles the questions today. He has to handle them a lot better than he did yesterday, but people were concerned that he is lying. Phil LeBeau knows him very well. He’s the one that covers on CNBC, covers the autos, covers the airlines. And he even said, “Listen, these senators are saying that you’re lying. What do you have to say?” And he’s like, “Well, we’re not lying. ‘But yet it sounds like you all when they should have question because you can’t answer it. Did you know about these?’ Oh yeah, I did, but … ‘All right. Why didn’t you do anything?’ Well you know, we got to do a better job at Boeing.” That’s how you’re answering the questions crazy.
Frank Curzio: But be careful owning Boeing here, I know it’s been right both of my calls, but it seems like I’m flip-flop a little bit. But again, when information changes, you have to go with it. Right now, man, Boeing’s all over the place and this uncertainty is going to continue at least the next three months, probably six months. That assumes everything goes right and they’re able to get these planes back in the air, let’s see what happens. I think you have time before that happens and you’re not buying a super cheap stock, it’s trading at a market multiple. It’s not trading at 12 times earnings because of this risk. It’s trading at a market multiple where growth is actually slowing, because they’re not manufacturing as many planes right now. Just something to think about. Let’s move on, because I have a great interview for you today.
Frank Curzio: He’s my buddy Marc Lichtenfeld. Great friend, great analyst, who I worked with at The Street. I hate saying that because that means we’re getting very, very old. But Marc is Associate Investment Director at The Oxford Club and the editor of theUltimate Income Letter. He’s also author ofGet Rich with Dividends A Proven System for Earning Double-Digit Returns, and that’s going to be the focus of our conversation, since many of you have asked me, “Frank, we need an income based newsletter. Why don’t you start again? We more income generating ideas.” And by the way, we plan on launching our own income newsletter in the first quarter of 2020 but we have Marc here, he’s going to be sharing his methodology with us, which is very important. How to find the best dividend paying stocks according to Marc, which is get people just to look at that yield and they want to buy the yield, but a lot has to do with the growth of the company and the health of the company because you can pay a 6, 7% yield, if the stock goes down 30%, it’s meaningless, right?
Frank Curzio: So Marc is going to talk about his methodology, where he gets these stocks from. He’s also going to talk about different sectors, because everyone’s used to, “Hey, these blue chips that pay dividends the dividend aristocrats, they raise a dividend annually every year for decades and decades.” Yeah, we know that, so does the world, that’s why most of those stocks are trading at huge premiums in the market. So Marc is going to talk about other areas outside of blue chips, ETFs, REITs, MLPs, even bonds, how you can generate income and as Marc always does when he’s on Wall Street Unplugged, going to share some of his favorite income ideas with us, which includes, a few names are going to surprise you and one name, which is a big surprise because it’s one name that I like that he doesn’t like and tells you to avoid. So you’re going to get a nice, not really back and forth but it’s a company that, you know, I like that he doesn’t like that pays a high dividend right now. So it’s going to be really cool. Great interview coming up.
Frank Curzio: Then in my educational segment, I’m going to break down earning season. About 55% roughly of companies have already reported and some really interesting stats I’m going to throw at you, stats that you need to pay attention to. I’m not going to bore you with just little stupid numbers, extremely relevant to your portfolio. But more important, I’m going to share some of the winners thus far in this crazy earnings season, I’m not talking about sharing the ones … the companies that are at 15% after reporting, I’m talking about names that are worth buying because they didn’t go up as much as they should after reporting pretty solid earnings. And of course, I will share a list of companies that you should be cautious of. There’s a lot of uncertainty, when I looked under the hood of many of these names after they reported, and by the way, some of these names are very widely held.
Frank Curzio: I wouldn’t be surprised if they’re directly, which meaning you own them and your E-Trade account or indirectly maybe through mutual funds that you have them in your portfolio in some way of another. I’d be very careful having these names in your portfolio. Break that whole entire thing down, earning season, stocks I like, stocks I don’t like after reporting. Lots of fun stats I’m going to throw at you. It’s a whole earning season, boom. Lots of names, so make sure you get your pencil and pen out. But first, let’s get to that interview, with the one and only Marc Lichtenfeld.
Frank Curzio: Marc Lichtenfeld, thanks so much for joining us again on the podcast.
Marc: My pleasure. Always great to be with you Frank.
Frank Curzio: Now you are an income specialist, and I would say it’s a great time to be an income specialist, since everyone’s looking for income, interest rates are coming down all over the world, central banks easing like crazy, but there are a lot of dividend paying names that are expensive these days, especially if you look at utilities and staples. So how do you find the best dividend paying stocks for your subscribers?
Marc: Well, as you mentioned, it’s a very popular space, which means it’s very crowded right now. So you have that combined with the fact that we’re 10 and a half years into to a bull market and it’s difficult to find great companies with great yields. So what I’ve been doing, … and I’ve been doing this my whole career, but I seem to be doing it a lot more these days, is looking for contrarian plays, so stocks that are out of favor because those are the companies that have the yields. Now you can’t just throw a dart at an out of favor company with a big yield and expect to make money. So you do have to find a reason that this company is going to turn around. I’m looking at the financials.
Marc: I want to see that even in a difficult period that a company’s going through, that the cashflow is sufficient to cover the dividend now and not just the future, but as of right now, while we’re sitting waiting for things to turn around, they can afford the dividend. And then if the company does in fact turn their financials around, turn their story around, then the cashflow can really take off and that dividend can grow even further.
Frank Curzio: Now you say cashflow, but a lot of people will look at a dividend payout ratio, which you can find at Yahoo Finance, and it’s simply the percentage of earnings paid to shareholders in dividends. So if the company’s earning a dollar and their dividend is a dollar, it’s at 100%, which isn’t good. You want that number well below 100% this way they could pay the earnings, but so many people are conditioned to look at that ratio and say, “Well, if it’s a 70%, 60% payout, you know, I’m okay with it.” But you’re really talking about cash flow. What’s the difference? Do you look at both of them or is it, hey cash flow is much more important than just the amount of earnings that are coming in to actually pay this dividend?
Marc: Yeah, you bring up a great point because I get emails all the time from our readers, saying, “Hey, how could you recommend this stock? Their payout ratio is 120%, they can’t afford their dividends. And that’s based on earnings.” So as you mentioned, you’ve got to have a company that is earning a dollar per share, let’s say, but they’re paying out a $1.20 dividend that looks like they can’t afford it. But I look at cashflow because cashflow is a much more accurate indicator. Earnings have all kinds of non-cash items in them. So there’s depreciation, there’s amortization, there’s stock based compensation as an expense. There’s deferred revenue. Cashflow is the more accurate representation of the amount of cash that a company brought in. And it eliminates all those non-cash items. So you can have a company that, let’s say you earned $100 million and paid out $120 million of dividends and you’d say, “Okay, well that pay out ratio is too high.”
Marc: But then if you looked at the cashflow, the cashflow might be 200 million. And that means that the company actually brought in $200 million in cash. And then forget the stock pick compensation and the depreciation. There’s $200 million of cash that this company brought in from operating their business. And if they’re paying out $100 million or $120 million dividends, they can easily afford that dividend. So when it comes to payout ratios, I really look at cashflow. Earnings are important because we know longterm stock prices follow earnings and if company’s earnings are going up, so will their stock price. But for analyzing a dividend and the payout ratio, I almost exclusively look at cashflow. I mean I’ll peek at the earnings because earnings are a component of cashflow. The first line item in a cashflow statement is net income. So obviously I’m looking at it, but cashflow is way more important to me when factoring in the sustainability of a dividend.
Frank Curzio: When you’re looking at these companies, when you say, “Hey, I’m looking to find, maybe beat up companies, value plays.” Do you have a list of names that maybe suspended or lowered their dividend? Let’s take a Kinder Morgan 2015 December, they … When you look at the numbers, it was obvious, even though they said for a year, “We’re not lowering our dividend.” But they did. They didn’t get rid of the dividend, but they cut it. And what happens when it gets cut is, I don’t know if it’s income funds, the algorithms, everybody sells this thing and it gets crushed. Yet their dividend is more aligned with where their stock price is trading. Because your stock price goes lower, your dividend and yield could go higher, higher and higher. So if you’re not performing that well, it looks like you might be having to pay a 7, 8, 9% yield, which obviously is much higher than industry average.
Frank Curzio: So what Kinder Morgan did is say, “Hey, you know what? We’re cutting our dividend, and when you cut the dividend, that’s more money coming into the company, improving the financials, everything, balance sheet. And then it turned out to be low December, 2015. I think it was about $14, $15. It’s $20 today, not that it went up tremendously, but it’s a nice company that’s been chugging along, paying out a 5% yield. Do you look at companies like that, that have cut? Because one, you’re going to see the price come down tremendously and a lot of these guys don’t cut their full dividend. They’ll say, “Hey, you know what? We’re just going to cut it in half.” And sometimes that represents a buying opportunity.
Marc: Yeah, generally I do not look at those companies and I get what you’re saying. I agree that very often when a company cuts its dividend, it’s absolutely necessary and it actually puts them in a better financial situation longterm. And not to say you can’t make money in those companies, especially when they do get beaten up. But for my purposes, which the income component is just as important as the eventual stock price appreciation. Generally I’m looking for companies with track records of never cutting the dividend and actually the opposite of long histories of raising that dividend. I want companies where the dividend is sacrosanct and the company will do whatever it takes to pay that dividend, because one of my portfolios is all about reinvesting dividends.
Marc: And when the dividend is going up every year it’s like pressing on the accelerator for the compounding machine and growing your wealth. So I’m really trying not to have any risk of a dividend cut in the stocks that I recommend. Even the higher yield ones, I’ll want to see a record of consistent dividends. If I’m looking at a more speculative play that is paying 8, 10%, I don’t need the dividend to rise every year for the higher yield one, but I do want to see that they have not cut at least anytime recently.
Frank Curzio: So I would think that would be a little difficult though, making your job tougher, because companies had a history of raising their dividends, which are called dividend aristocrats. Those are the names that pretty much so many people, even funds look at where a lot of those names aren’t really trading at discount because they continue to raise their dividend. So does that make your job more difficult trying to find ones that are cheap but are raising their dividend every year, because that’s the first place people look for is a dividend aristocrats to jump in some of these names?
Marc: Absolutely. It makes it difficult and that’s why I’m gravitating more and more to these beat up names, where the company does have a history of raising the dividend, but people are scared off by recent weak performance either in the stock or in their financials or both. So it really kind of makes it the perfect scenario for a contrarian investor because people don’t want to touch these companies even despite the fact that they’re raising their dividends. They are gravitating more towards the more common names or companies that are performing better. So it certainly makes it tougher. But it also makes it more fun and I think it’s going to be more rewarding, because you are getting these stocks that nobody wants and you get them cheap and you get really good yields while you’re waiting.
Marc: I mean, because there are plenty of companies that raise the dividend every year, but just because they’ve done that, doesn’t mean that their current yield is cheap. Your yield on cost might be cheap if you bought it 10 years ago, but if you’re looking at it today, just because the company has raised the dividend for 25 years in a row, it could still be yielding one and a half or 2% because the stock price has gone higher. So again, going to these contrarian names is a lot of the places where you find the four and 5% yield on companies that have raised that dividend every single year.
Frank Curzio: No. Yeah, it makes sense. Now, a lot of people who are listening to this, and I’m getting so many questions. “Frank, start income newsletter, we need income, income, income.” Even though it’s… everybody says that they do…
Marc: Don’t do it Frank.
Frank Curzio: Yeah. But the point is that everybody wants to … They need income, especially looking at retirees and it’s so difficult to get there’s zero interest rates across the world, everybody lowering. And I get it. But most people when they ask for income, especially through this, because you can say this is like an equity podcast. They say, “What are the blue chip stocks? What are the names I could buy?” But yet you look at so many different sectors, looking at MLPs. I don’t know if it’s closed in bond funds, the REITs and also bonds as well. I mean, there’s so many alternatives out there. I think people just focus on simple blue chips. Can you talk about those other alternatives, if you’re finding ideas in those segments of the income market?
Marc: Sure. You mentioned MLPs and bonds. Bonds are a very different game. With a bond, you really need to be able to hold that. And then you really should only buy a bond if you plan on holding it to maturity. A stock, you can always put in your stop-loss, if it doesn’t work out. You can pull the ripcord and bail on it. But a bond, you really don’t want to do that because a bond … you get your money back if you buy it at par, most bonds are issued at $1,000 and then they trade above or below that. But at maturity you get $1,000 back. So if you’re buying a bond, you really want to buy it for the sole purpose of the interest. And if you’re able to buy it below $1,000, you’ll have a little bit of a gain too, which is nice. But that’s not the primary purpose though.
Marc: The purpose is collect the interest, and get your money back at the end. Whereas a stock, obviously you’d like to collect a nice dividend, but the goal also is appreciation. You’re not just hoping to breakeven on the stock price. MLPs are really interesting, especially from a tax perspective because … MLPs for listeners who may not be familiar, they typically are oil and gas pipeline, not always, but typically. They have pretty generous yields, usually 6, 7, 8%. And what’s really nice about them is the income you receive is tax deferred. And basically what happens is you’re getting what’s called a return of capital, and it lowers your cost basis with every dividend that you receive, but you don’t pay income, I’m sorry, you don’t pay tax on the income received in that year. So it is deferred until you sell the investment.
Marc: And that’s because again, the cost basis is lower, so your capital gain theoretically should be higher. But another area I really like too, and these typically have pretty high yields, are business development companies or BDCs. These are companies that generally lend money to other businesses. Sometimes they take an equity stake, but often it’s more of a … they’re lending money, and they’re going to have quite high yield. Some of them have yields 9, 10, 12%. And some of these companies have pretty steady dividends where, despite paying double digit dividends, they really … I’ve never cut one company that I really like. I’ve liked it for a long time it’s called New Mountain Finance, NMFC is the ticker, and they pay about 10% yield, and have never cut the dividend.
Marc: And one thing I do want to caution anybody, when you’re chasing yield, if you’re getting a 10% yield, is there’s risk there. That doesn’t mean that the dividends automatically going to get cut, that doesn’t mean that the stock automatically going to go down because there’s higher risks. But definitely understand that there is higher risk if you’re getting a 10% yield. Nobody today is just handing out 10% yields because they’re feeling charitable. I mean, there’s risk there. But I do like BDCs a lot. And I have for a while, they’re a really interesting segment. Just don’t like because they’re higher risk, don’t load up on them. But I think to add them to a portfolio where you can tolerate a little bit of risk is a good idea.
Frank Curzio: So Marc, any names and I want to get some of names, that’s what people love, and you always do a great job of sharing some of those names. Before we to the names where you just … you just give away NFC, which is New Frontier Corp. Are there any popular dividend paying stocks that you would tell people to avoid because I’m sure you’ve come across some of these and said, “Wow, I thought this was good. But after looking under the hood …” And that happens with the research process where, a lot of people don’t see, all they get is your newsletter, they get my newsletters and they’re like, “Okay, here’s the pick.” But they don’t understand the research behind it. When there was about 15 stocks I was looking at that didn’t make the cut and this is the one that did. Are there any names out there that you would say, “Hey, just be careful. It looks like a nice play.” Maybe it’s McDonald’s where growth is slowing or whatever it is, but let’s start there before you give us maybe a couple of picks that you do like.
Marc: Sure. So I’m not a real big fan of Ford right now. Their yield is over 7% I believe right now. So that’s really enticing from a yield perspective, but I’m not convinced that that dividend is sustainable in the short term. They’re sinking a lot of money into research and building out their electric vehicles division. And I actually think long term that could work out very well for them. I do believe that electrical vehicles are going to be become enormously popular in the long term, but short term, they really can’t afford that dividend right now. Their cashflow just isn’t high enough, and their cashflow is expected to crater this year by about 90%, and somewhat in large part because of how much money they’re putting into electric vehicles. But short term they can’t afford the dividend and they do have a history of cutting the dividend. They cut it in 2001, 2002, 2006.
Marc: So they have shown the propensity to cut the dividends. And we were talking earlier about whether I’d look at companies that have cut the dividend or not. And I used that word before sacrosanct. I like companies where the dividend is sacrosanct, because once a company cuts the dividend once, then they basically have broken that trust or that line in the sand, they’ve crossed that line in the sand with investors. And once they do it, they often do it again and again and again. So with Ford, we’ve had three dividend cuts in the last 18 years, so I would not be shocked if they had to do it again as their cashflow drives up in the next couple of years. Longterm it could all work out, because I do think EVs are going to be popular, but short-term, I wouldn’t touch the stock.
Frank Curzio: And what do you think about some of the ones that you like right now, maybe even if they were off the radar, some names that people … like one of the ones that you just gave us, the BDC. What are some of the ones that, that you’re looking at right now? And I don’t want you to give away anything that’s in your newsletter, and obviously your paid subscribers, but maybe a couple of ideas because I know you love sharing those.
Marc: Sure. So one stock that I really like, and this is in the newsletter and is wildly unpopular. The stock just got smashed is Six Flags, SIX is the symbol, they own amusement parks and they’ve really been struggling in the last few quarters they’ve had their traffic hasn’t been great at their parks. Just their numbers have not been terrific. And compounding their problems is their international expansion. A couple of years ago things were looking fantastic. They were expanding in China, they were going to expand to Saudi Arabia and some of these projects have been delayed, so they’re not opening when they expected to. So that’s pushing out profitability and cashflow. Several years out, their CEO who just retired and he had actually left the company a couple of years ago and was brought back because he was like the savior of Six Flags the first time.
Marc: So there’s lot of reasons not to like Six Flags. The reason I like it, again going back to, my earlier philosophy that we talked about, the company still generates enough cash flow despite their problems. They still generate enough cashflow to cover their dividends. There’s not a huge comfort zone anymore. There used to be, it’s not a huge comfort zone anymore, it’s bumping up right against the 100% payout ratio, which I don’t like to see, but I think longterm it’ll be fine. They just hired a new CEO that has a ton of international experience. So I’m excited about that. And there was a lot of question about who the new CEO was going to be and has over a 6% dividend yield. So this is one you have to be patient with. You’re not going to make a ton of money on it overnight. And just like most of the companies that I do recommend, that are our dividend plays, these are not trades, these are long term holds that we’re planning on growing our wealth over the longterm and generating a decent yield in the meantime and Six Flags is going to be that stock, I think.
Marc: And I’ve seen a lot of stories like this where you have a company that’s just really been beaten up trading at a cheap valuation, good yield, decent cashflow and more often than not it works out and works out well. This is also the situation I could see an activist investor coming in and demanding some things to be shaken up. I think any institutional investor would give the CEO at least a little bit of a runway, but if things aren’t improving within a year, I could see an activist coming in and demanding some changes being made and who knows, even maybe selling the company, but yeah, Six Flags is something I find … I liked it before and now that it’s lower in price, I think it’s going to be a great longterm hold and you get a really nice yield while you’re waiting.
Frank Curzio: Now I’m going to switch tunes a little bit. Something I like to ask you when I do have you on here, because you cover the biotech industry extensively. When we were first working at The Street together, which is a pretty long time ago, it’s getting longer and longer, meaning we’re getting older and older, but we won’t talk about that. But I wanted to see, because I know this is an industry where you’re always interested in, and I know you’re really focused on income these days, but with biotech, is there anything catching your eyes? And maybe it’s not maybe just been focused on income because there was big news out of Biogen and you’re very familiar with Alzheimer’s and that market and the drug market, you’ve been familiar with that for decades. Is this a game changer that’s going to lead to more companies exploring ways … they are targeting, what is it? Amyloid, I think it is that, that-
Frank Curzio: … Whatever. And a lot of people were saying, “Well, this doesn’t work.” And that’s the … What is it? The protein that increases tremendously in people who have Alzheimer’s. So now, a lot of that research was … canceled their research. Roche canceled. But now with Biogen, it looks like a lot of this could be on the table. I don’t know if that’s something or other areas of biotech that you’re focusing or maybe you’re not. But I think I always like to ask because I always like to get ideas from you.
Marc: Yeah. So the fascinating thing about this Biogen story is, this was a drug that had basically been killed. And then to everyone’s surprise said, “We’re going to go ahead and submit it to the FDA for approval on Alzheimer’s.” Even though there wasn’t a lot of evidence that it was going to work. So the Beta Amyloid thesis is the idea that these chunks of proteins in the brain are present in Alzheimer’s patients. No one’s been able to prove that if you get rid of the Beta Amyloid that you’ll get rid of the Alzheimer’s or reverse Alzheimer’s. It’s not clear what’s a cause and what’s an effect yet as far as the Amyloid. So there are other companies that are looking at other markers for Alzheimer’s.
Marc: To me right now, Alzheimer’s is such a difficult place to invest because they just … From my perspective, no one really has a definitive theory or hypothesis on, on how to cure it. There are theories, but nothing has been proven to work. So I tend to stay away from Alzheimer’s when investing in biotech. What is exciting to me right now is gene therapy. And I especially love companies that are … The picks and shovels of biotech, particularly in gene therapy. So a company like REGENXBIO, RGNX is their symbol. They have their own drugs, but they also have technology that they sell and license to other companies. So they’re providing the tools necessary for other companies to make their discoveries. And if a company uses their technology to bring a drug to market, then they’ll get royalties on it as well, so they don’t even have to be the one to spend all the money on discovering the drug.
Marc: And taking that risk. So I love companies like that, that help other companies strike gold, because then you get a little piece of it each time somebody else does.
Frank Curzio: And the last part here, which is also the most important, are you still ring announcing, because you’re a ring announcer, which I bring up all the time and I’ve actually gotten emails, because we’ve been doing this such a long time. I’ve had you on this podcast numerous times over the past four, five years. And they’re like, “Wow, I saw Marc on ESPN.” And by the way I saw Marc live, he is unbelievable to the point where this could be your job. Look out Michael Buffer. Anyway, are you still doing that because I love seeing you on TV and it’s something that I think a great at, it’s awesome just to see that.
Marc: Thanks very much. Yeah, I’m still doing it. Not nearly as much as I used to. There was a time where I was on the road every month doing HBO and Showtime and ESPN. And my travel schedule for my real job, and then having older kids is that need my attention, and just other commitments. So I’m not traveling nearly as much as I used to. And so I’m still doing it, but it’s slowed way, way down. When an occasional show pops up, I’ll be happy to do it, but I’m not hustling to get on to Showtime and ESPN the way I used to just because I just can’t be away from home as much as it would be required.
Frank Curzio: Yeah. And it’s amazing because as your kids get older, they’re supposed to require less of their parents, but I’m learning that, that’s the opposite, right?
Marc: Yeah, yeah, for sure. Especially teenagers, so you want to be around for them, it’s a pretty important time of their lives.
Frank Curzio: No, absolutely, absolutely. So let’s finish it here. If someone wants to learn more about you, how can they do that? Where could they go and also go over your book, which is getting lots of traction. Amazing, which we didn’t get a chance to mention, please mention that as well if people are interested in buying your book.
Marc: Sure. So my website is wealthyretirement.com and that’s a free website, so please go check out what I’ve written on there and my book, I have two books, You Don’t Have to Drive an Uber in Retirement andGet Rich with Dividends and I’m actually really excited about Get Rich with Dividends. That’s actually my first book, but as we speak, it’s being translated into Japanese, so that would be the third foreign language it’s being translated into and will be available next year in Japan. So I’m really excited about that.
Frank Curzio: And you’re doing a road tour in Japan also, aren’t you or something?
Marc: Yeah, in March I’ll be going to Tokyo to speak at a conference for investors who are interested in income investing, and the book should be out by then, so that’ll be pretty exciting.
Frank Curzio: That’s great stuff. Well, Marc, listen, as always, my guests love you, you’re always giving ideas, especially in this market where people are dying for income ideas. So I really appreciate you coming on. Love you and yeah, hopefully you join us again soon buddy.
Marc: Yeah, my pleasure. Anytime. Thanks for having me.
Frank Curzio: Okay, that’s great stuff from Marc. I love the fact he said he hates Ford, because I love Ford, and I told you why. I’m on an island all by myself, which was the case for this other stock that I recommended, which is up 20% today, which I’ll get to in a minute because they just reported earnings. But with Ford, look, I love what they’re doing. You look under the hood, the amount of investments they’re making in technology, that they’ve made in technology or the past six, seven, eight years are incredible, all come to fruition. There’s a lot of hidden value within that company. You’re looking at a change of business model where they’re focusing more on trucks and crossovers and less on cars, which is great. They’ve seen their international business turnaround.
Frank Curzio: The reason why their stock got hit by 5, 6% after earnings is because they lowered their operating income guidance, which is conservative because they’re going to go what General Motors just went through, where they’re renegotiating their contracts with the union and there’s going to be lots of back and forths, but I’m sure they’re going to come up with a good deal just like General Motors did. And once that risk is off the table, this thing’s really going to take off. So that’s the last hurdle that’s going to happen in the last couple months of the year and maybe into next year. But with Ford and everything that they’re doing, it’s incredible. I don’t see them canceling their dividend, I’m a big fan of Ford because all these risks and everything are really factored in with the stock trading at, man, what is it? Six, seven times forward earnings.
Frank Curzio: It’s dirt cheap. They are generating cashflow. They just lowered their operating income. They beat the numbers pretty easily. They’re probably going to beat going forward, almost every single quarter going forward. But they were conservative of course, because there’s a lot of uncertainty in the stock when it comes to negotiations with their unions. But again, that’s going to be off the table probably over the next few months. And then, I think it’s going to be a great opportunity to buy Ford. The reason why the top insider at Ford bought was $8 million. I mean we’re not talking about a fund here. We’re talking about an individual who bought $8 million worth of stock. Someone who already owns a ton of the stock, which is incredible.
Frank Curzio: So for me that’s an indication if things are going well, they just got to get through this last hump. I think it’s going to be a good buying opportunity, especially right now with the stock trading around $8.50-ish, $8.75-ish. So great stuff from Marc again. I say this all the time, but I mean it, this podcast is about you, not about me. So let me know what you thought at email@example.com, that’s firstname.lastname@example.org. And last note about Marc definitely is great ring announcer and I’m telling you, I saw it live and he’s fantastic, and I’ve seen him on TV and it’s pretty cool when you see him, but if you see ESPN, you might be able to see him there and he’s a very, very good ring announcer. It’s really cool. Now let’s get some my educational segment.
Frank Curzio: So we have little more than 50%, around 55% of the companies report earnings this far. Tech has outperformed, thanks to Microsoft and Intel along with healthcare and staples. Those are leading sectors. You have Apple and Facebook on deck for later tonight, so by the time you’re reading this you’re going to see the Apple and Facebook reported and let’s see those numbers, expect to be good. Apple, I mean that’s … when you look at Apple the stock has run up so much. I think almost whatever they report, it’s going to be hard for that stock to move higher, at least in a short term because so much of that is factored in right now. If they do miss, you might see a 5% pullback, but again, you’ll be able to judge my call, which I like putting myself out there. Because they’re going to report later, Facebook as well. It’s going to be interesting to see how they’re transitioning, how they’re handling the political ads, are they able to get those political ads?
Frank Curzio: This is usually a great season for them, but we know what happened in the past where we have candidates that manipulated the system and did a lot of crazy stuff through Facebook. Let’s see what they have to say. It’s going to be a very important conference call. You’re looking at weakness and energy across the board. I mean, that’s pretty much expected, which is likely to continue. I mean all prices are relatively weak. They’ve been weak over the past three to six months. So energy estimates are coming down tremendously. Industrials, consumer discretionary has also been weak. Overall, if you’re looking at, thus far, earnings season has been positive. I mean, coming in about 2% ahead of consensus estimates, this results in around a flat year over year comparison and put that in perspective, earnings are expected to decrease around 3% year over year now, they’re roughly flat, just a little tiny bit negative.
Frank Curzio: That could change. But one trend that’s interesting is companies have lowered guidance at a much higher pace than usual. Usually, it was a percentage, whether it was 30, 35%. Most of these companies are being very conservative with their guidance. So what is this resulting in? The consensus estimates, which is basically all the sell side analysts that cover these stocks, they’re lowering their Q4 earnings, which is next quarter and 2020 full year estimates, which is going to provide an easier beat next time around, because expectations are going to be low. But they’re lowering those earnings, which is kind of surprising. But when it comes to sales, which is top line, most companies are reporting pretty strong numbers and they’re raising estimates. So sales are okay but they’re having trouble, getting their sales to really come down to the bottom line and again there’s buybacks.
Frank Curzio: A lot of manipulation, which is forced manipulation. When I say manipulation, I mean legally, because these companies have to report every quarter. Companies shouldn’t have to report every quarter, they should report every six months. But with lawyers and fees and the whole system, everyone’s got to get paid, so I get it. But that promotes or leads to aggressive accounting practices and putting, big contracts in certain quarters to meet your numbers because that’s all everybody cares about. Just beat that number and raise and you’re fine. Anyway, sales are pretty good. Earnings are decent, but guidance going forward has not been. Now there’s reports that CapEx, so CapEx is capital expenditures, which is the spending companies make for acquisitions to upgrade their facilities, supply chains, build new projects. It’s basically a strong indicator of future growth for a company. Potential growth.
Frank Curzio: Even though when companies miss earnings and they say, “It’s because we’re spending more.” I usually use that as a buying opportunity because they’ll miss earnings, the stock come down, but when you’re spending more, you’re spending more on marketing, you’re going to bring in more money to the company. And some companies like the Facebooks, like the Microsofts, well Microsoft as of late last four or five years, are great at spending money and generating huge returns on their investments where others are not. You’ve looked at Microsoft early on, with so many of those acquisitions, we’ve seen Google, not too many good acquisitions. I’ll get to that in a minute, but when you look at CapEx, there’s reports saying that it’s a lot higher and it rose 3% last quarter and that’s a big number, it’s in the last quarter, this is the current quarter that they’re reporting.
Frank Curzio: But when you look under the hood, a lot of that is driven by just one company, that’s Amazon, close to a trillion dollar market cap. But they’re driving a huge part of that growth. So the CapEx story, and I’m mentioning it because I’ve seen it mentioned by really good analysts who I respect on TV, I suggest ignoring that point. Ignore the point of CapEx, because it’s mostly coming from one company and most of it’s going to come from two companies when Apple reports because they’re spending a lot of money on content, building up their streaming. So it’s not that CapEx collectively everybody, it’s moving up, it’s really based on one to two companies. So the CapEX argument doesn’t hold water for me. And when you hear it, that’s a big point, because you’re looking at … Everyone looking at the market and say, “Well, we can have a recession.” Yet people say, “Well, CapEx is increasing.” And that’s a fact.
Frank Curzio: But again, you want to look under the hood. It really comes from just one, two different companies, that’s two large companies and put into perspective, I mean trillion dollar market cap. If I had to guess to put that in perspective, again, don’t hold me to this. But if we went down to the 500 companies, we went down to 150th, at least to 200 you’re going to see most of those companies are below a $50 billion market cap. So you could say, “How come Amazon, represents so much of CapEx?” They’re like 20 times, 30 times the size of most of the companies in S&P 500 outside the top 20 or outside of the top 10 really? So it’s a big deal, but don’t … Anyway, I don’t want to beat this death. I’m not buying the CapEx argument. Not yet.
Frank Curzio: Also, something interesting, the price reactions post earnings. So after these companies report earnings, have been much bigger than usual on both sides. So companies missing on sales and earnings, so it drops in excess of 3%, which is much greater than around two point, whatever percent, 2.2 whatever it is, historical average and companies being on both sales and earnings, so the stocks rise much more than average. So again, we’re talking about high volatility, some I’ve been talking about for at least the last three years where … I mean, companies, these things are all over the place. A lot of algorithms, companies will report earnings will be up. Positive earnings will be up 2, 3% and the next thing you know they’re up 15% by the end of the day. Tesla is a good example of that stock rose. And next thing you know, after earnings it was up whatever, 15, 17%. So that’s some of the interesting trends I’m seeing.
Frank Curzio: Also, companies with more exposure overseas are seeing much bigger declines in earnings than expected. This makes sense given that you have the China trade issues, weakness in Europe and emerging markets. But in the previous quarters that was opposite. I don’t know why, but the companies with exposure to global, to the global areas, were actually reporting better earnings. Now finally, this makes sense. A lot of these companies are starting to get nailed. Small caps, making a strong comeback, after having a terrible year through September in relation to large caps where the performance between S&P 500 and the Russell 2,000 was the largest gap in 17 years in terms of the S&P outperforming the Russell. So large caps significantly outperformed small caps through September. That’s changing. See more money, again these small caps, most of their business done in US, dollar is doing good, the US is doing good.
Frank Curzio: And companies that have exposure to Europe, Asia, economies that are slowing are starting to see hits in earnings. Now the calendar year 2019, reported Q3, are also projecting earnings growth of just 0.6% and revenue growth of 4%. Next year, calendar year 2020, analysts are projecting earnings growth of 10%, that’s a big number. Very big number and revenue growth of 5.3%, also a big number, a lot of optimism heading into next year. Not so much next quarter because companies are lowering their estimates, but 2020 it’s the real deal. No tax reforms, no BS. Buy backs factored in, 10% earnings growth. That’s a huge number for 2020 from these levels. I think that number has to come down a lot. We’ll see. But if that number holds true that the S&P 500 trading right now at 17 times forward earnings, which is slightly above the five year average of 16.6 times forward earnings.
Frank Curzio: I know I’m throwing a lot of numbers at you, but it’s very, very important. Right now we are trading 17 times forward earnings. The five year average is 16.6, what does that mean? We’re not crazy expensive here relative to earnings, but we’re definitely not cheap either. Now close to 25% of the S&P 500 is going to report earnings over the next five business days, there’s going to be nuts. That includes Apple and Facebook today, which I mentioned earlier, and also a ton of real estate companies, so a lot of the data, a lot of the calendar year forecast. A lot of this stuff could change. Going to get updated. We’ll see. But after taking all of this and looking at all the numbers, I love earnings season as you could tell. I’m really into it. I love listening to conference calls, what’s going on with these companies?
Frank Curzio: It’s finally a stock pickers market. I mean not everything is going higher. Not every momentum name is going lower. As we’ve seen with new IPOs. Uber, Slack, Lyft, Beyond Meat as of late, I mean selling off tremendously. Still up from its IPO price, but man, this thing was really a high flyer. Now I think it’s down 40%, maybe 50% from its highs, So not everyone’s name is going lower, those are, but Roku is on fire. Chipotle is on fire. AMD, those are some of the names that continue to outperform. So it’s not all momentum, rush out of everything momentum. It’s not, there’s some that are working, some are not. And from someone that covers this their whole life, the last seven years, basically it’s the entire sector moving up, the entire sector is moving down, dividend paying stocks, moving up, everything value going down, everything growth going higher.
Frank Curzio: I like that right now, which is pretty cool. It makes my job a little relevant now. All these kids say, “Yeah, just buy Microsoft. And buy this and buy that.” They’ve never lived through a bear market, you really had to dig in and look at some of these names. So not all value companies are sells right now, like they’ve been for a lot of years. There’s a lot of these names start to bounce off their lows because money’s flowing into, let’s face it, this mostly forgotten sector of the market. Now let’s get some names, which I know you like. Well names that you liked, that I’ve mentioned names. I don’t know if you’re going to like the names I’m going to mention. But Intel blew out the numbers. I covered that in educational segment of Frankly Speaking, which is a special podcast available to my paid subscribers. I do like Netflix here since nobody’s canceling this service since they have the best original programming in the business by a mile.
Frank Curzio: I told you to own a major bank for how many years? Four or five years. Everybody, so many emails, “Oh Frank, I hate this system and I get it.” But if you look at these companies, they have the strongest balance sheets they had since the history of our country. They’re all reporting record earnings. Most of them are trading at 52 week highs if not all time highs like JP Morgan. Still continue to raise their dividends like crazy. When I said, own a major bank, I’m talking about the big four, JP Morgan, Wells, Citi Group, Bank of America. You would have done well on all of those, and they’re going to continue to go higher even though I know they have interest rate risk, but they’re still buying back tons of their float because they’re not allowed to do anything with the money on their balance sheet, because of the regulations and Dodd-Frank.
Frank Curzio: United Healthcare was solid. I like most health insurance. This is one of the few sectors that remains dirt cheap and growing much faster in the overall market. On the negative side, I wouldn be a seller of Tesla here. And look, there’s a lot of craze, just go on Twitter. Every time there’s an accident reported, I mean there’s people so emotionally involved with shorting Tesla, it’s like, I can’t even listen to them anymore. But they were caught on the wrong side of the fence last quarter. And this is what? Like a week ago when it says reported, reported strong earnings and stock took off and they reported strong earnings and generated cashflow. A lot of the arguments these people were making, which Elon Musk always does a great job of doing, because he knows what everybody hates about it and what everybody’s worried about and he’ll make sure those metrics, where he cuts staff tremendously and they’re a much more leaner company. So are they’re able to save money, it’s fallen to the bottom line and he came out and said, “In your face, here you go.”
Frank Curzio: Now getting into that quarter, if you’re looking at Tesla, extreme, extreme pessimism. When it comes to sentiment, everybody hated Tesla, everybody, it’s hard to find a Tesla bull. Even the ones that you find people just rip them apart, so they don’t like going on TV or anything. There’s Rob Baron or whoever likes Tesla. But now it’s different. There’s a lot of optimism. All the analysts raise estimates, a lot of them upgrade the stock. Not a lot, but a few. A lot of them raised their price targets. Even the ones that had sells on it, raised their price target by 20, 30%. There’s a lot of optimism. But when it comes to Tesla, there’s still a lot to worry about, where competition’s coming in, that tax credit is going to be gone, just supply chain worries and concerns. I think Tesla is a stock that you should take profits on or that you could short here and I bet you a Tesla 270, 250 level. Again, it’s just, I like buying stocks when everybody hates them.
Frank Curzio: Everybody hated Tesla. Now it seems like so many people like Tesla a lot and sentiment-wise, I think the stock is going to come down. Already is coming down, starting to come down off of it’s quarter. I looked at Google’s numbers really weak. How do you know? Well when analysts go on TV and they talk about, “Google’s huge cash hoard.” And their some of parts analysis, that means nothing went right in the quarter and search, what’s going on YouTube, they’re talking about some of parts analysis. That’s usually the last thing you talk about because everything else at the company sucks right now. I didn’t like Google’s quarter, the ton of bulls in this name. I think there are better plays in the tech sector to bet on. Let’s see what Facebook and Apple report today. I also hate the acquisition or the potential acquisition of Fitbit, which tells me Google’s not innovative.
Frank Curzio: It’s not difficult to make your mark on this industry as incredibly low barriers to entry, but why spend 1.5 to 1.8 billion, which is not a ton of money to Google, but that is a lot of money to acquire Fitbit. I know they have a lot of users, but you could probably wait a year and buy this company for half the price. I mean it has no pricing power. Fitbit. There’s ton of competitors in the industry. I tell you this because I attend the Consumer Electronics Show every year, which I’m going in January and bringing … we’re doing a whole production, which is going to be really cool and live videos, all this stuff. So that’s the second week in January I believe. That’s going to be a lot of fun. But when you’re looking at the wearables, it’s probably the biggest segment of any segment that’s on the floor at the Consumer Electronics Show, there’s literally hundreds and hundreds of companies with similar technology. So I don’t know, it just tells me that they’re not innovative.
Frank Curzio: I don’t know why you would spend that much money on it. I mean you could start your own division with that kind of money from scratch. But anyway, I know YouTube is killing it, they’re doing well in the streaming wars, but it’s the ad component that makes this business work and some believe, a spin off of YouTube could put a valuation as a company of 300 billion. That’s why they’re talking about some of parts and they could be right. But whatever, YouTube is driven by ads, not streaming. I know they’re doing well in the stream, but it’s going to be a very small part of the overall revenue pie as Google is a search company, just like Apple is an iPhone company. As much as they want to get away from that, it’s difficult, and by the way, I still don’t know how any company, any company is going to make money with their streaming services considering, you need to own tens of billions of dollars in content and spent tens of billions more every single year to create new content. Yet you’re going to charge $10 a month for these services.
Frank Curzio: I don’t get it. Maybe it’s me, I just don’t get it. But nobody has made this model work yet in terms of profitability, not Netflix. You’d go Netflix and say, “Hey, when do you think you’re going to generate profits?” They’ll tell you, “We don’t know.” They’ll tell you, “We don’t know.” It’s not inside seven years, maybe they can make up this kind of cash flow model and say, “Hey, this is where we’re going to …” Right now, they don’t know, and they’ve been around for how long? Who’s losing a ton of money? Not Disney, which probably won’t generate profits from streaming for at least a decade, and they spent what? $71 billion to acquire Fox’s Entertainment assets? $71 billion, 25% of their market cap, so that they could charge $6.99 a month for the service oh wait or $12.99 with Hulu with ads, and I get it.
Frank Curzio: They can spin off a lot of these assets. They can make them work. It’s the theaters, it’s the merchandise. I get it, but also get that the $71 billion was mostly done with debt and the guy that paid debt payments on this, hundreds of millions of dollars in debt payments on this debt, which we’re not factored in. Anyway, and you look at AT&T, at least they have monster cash revenue generating machine with wireless, just HBO Plus thing. They’re not in dire need of cash or making this business work immediately, which is kind of the case with Disney going all in, after spending $71 billion to purchase this content, so I’m worried about Disney. Couple more stocks here, Texas Instruments was a disaster and I was looking to see if it was company specific or if it was the whole semi-industry. Then Intel reported and blew out the numbers.
Frank Curzio: But if you look at Texas Instruments, every division was weak across the board and the stock is still trading at 23 times forward earnings. The market is trading at 17 times Intel is trading at 12 and a half times. You got to buy Texas Instruments off this quarter at 23 times forward earnings? There’s got to be a re-rating to that multiple. It wasn’t just, “Hey, we’re pushing orders out till next year or we missed the quarter, but we’re back on track.” No, every division was really weak across the board. Mattel I kind of relate it to Ford. I mean Mattel, I did a ton of homework on, recommended it. We’re up nicely now, it popped 20% today it’s reporting great earnings. It was a whistleblower, there’s a lot of uncertainty in the stock. And this thing is down tremendously. And I just figured, “Hey, a lot of this stuff’s priced in.” Mattel’s business model is changing, they’re doing amazing things right now. If you’re looking at their divisions in Hot Wheels and Barbie, they’re all growing now, they’re cutting costs tremendously, which is great news.
Frank Curzio: All this is filtering into the bottom line. They blew out estimates. There’s a whole whistleblower thing about their accounting issues in the past, and they addressed it and said, “We did a whole full review, independent. Everything is good now. We don’t have to make any changes.” There was one time where they reinstated earnings on the low side. Another time it was high side, but they basically offset each other. So there’s going to be no difference in anything. But that removes a huge uncertainty from the company, which is why the thing shot up 20% today. I think it’s just the beginning. It’s still dirt cheap. But if you look under the hood in these companies, everyone’s yelling and saying, “Oh, they’re in trouble. Mattel will go out of business, they’re horrible in the short reports.” The stuff that they’re doing is incredible. They’re going to start making the Barbie movie with Margot Robbie. Blonde beautiful girl in Wolf of Wall Street, she’s going to be Barbie.
Frank Curzio: But now they’re doing the same thing as Marvel’s doing, which look at what Marvel did for Avengers, it’s incredible. So I love what Mattel’s doing. Everything’s in place. They have a lot of this risk behind them. I think that’s going to be similar to Ford after they solve the issue with their unions, which is going to be last issue. You’re going to see these earnings pop tremendously because a lot of hidden value in that company, they had the right business model focused on trucks and crossovers. I think, you see a little bit more risk in Ford to the end of the year after that … I mean even now, I think most of that is priced in, but it’s a good buying opportunity just like we saw at Mattel. That’s a hold in Curzio Research Advisory, I’m giving it away because it’s much higher than a buy up to price now after this 20% move, but I do think it’s going a lot higher.
Frank Curzio: Got more companies here, GE also really solid. Why? Because they addressed a lot of the risks. The reasons why people hate them, and the reason why JP Morgan analysts hates them is cashflow and power concerns and a lot of this stuff is turning. Those cashflow numbers were incredible and GE is up 10% on the news. Yum! Brands is pretty weak. They had exposure to China also Tupperware down 30% after earnings. The stock was already down 50% heading into the quarter, from 30 to 14, now it’s around 10. But I hired this company a couple of weeks ago. It was one I wanted to take a look at, but only because the name is down 60% and it looked cheap. I didn’t get a chance to take a look at it, but now I’m definitely interested. But when you see a company down 60, 70% for the year, like this company, it assumes like they have liquidity problems, maybe bankruptcy risks, which I don’t think is the case, but it’s definitely a name I’m going to look more into, like Mattel.
Frank Curzio: So to sum things up, I know there’s a lot there guys, but all these companies are reporting, it’s not just the S&P 500 it’s mid cap, small caps, thousands of companies are reporting. Just wanted to highlight some of the things I’m seeing and throw some names at you. But to sum things up, earnings season has been slightly better than expected. Guidance has been a week for next quarter, Q4 and 2020 where estimates are coming down. But start doing your homework because there are names like Intel and Texas Instruments in the same industry, which is semis where one kicked ass and the other one is a pile of, you know what. Same in healthcare, same in technology. Twitter was terrible, Microsoft was good. So put it all together, it’s a stock pickers market. If you do your homework, you’re going to find some great ideas. You’ll find lots of ideas where we’re finally seeing separation in names that trade within the same sector. Instead of all social media companies moving higher. All momentum names moving higher at the same time, all mining material companies moving lower at the same time.
Frank Curzio: No, there’s separation, guys are doing a good job and guys are doing terrible job when it comes to management teams, so lots of opportunities out there. In fact, I’m probably seeing more opportunities of trying to buying cheap stocks with huge growth potential. Then probably any time over the past 24 months. So guys, that’s it for me. One note before I go, we’re going to be launching our first newsletter in over a year, our first new newsletter, it’s coming out in a couple of weeks it’s a trading service called the 2-Second Trader. Since it is literally going to take you two seconds to find the levels to trade any stock that’s in your portfolio, it’s going to be run by Rich Suttmeier who pretty much, I was going to say probably, but has the best performance of any analyst that’s come on my show at least over the past 24 months.
Frank Curzio: Yes. I track this stuff through Dollar Stock Club. That’s another newsletter we have where I take a pick every week from my guests, write a one page detailed research report on it, track it in a portfolio. It’s pretty cool. And these names sometimes mentioned in and during the interviews and other times they get these picks when I’m talking to the guests before or after or off air. So I’ll vet the company. I have a nice one page report with a bunch of catalysts saying who the analysts are, recommended it, who likes the stock, give you a buy up to price. And we charge a dollar a week for that product. And that new pick comes out every Thursday and we’re starting to add a lot of subscribers to the price point and to the quality of the product. And people love new ideas. So that’s Dollar Stock Club. But that’s how I know Rich’s outperforming everybody else because we track this stuff now and just be on a lookout for more information about 2-Second Trader newsletter.
Frank Curzio: Very, very excited about this. We’ve already seen tons of positive feedback from you since this is going to be a spinoff of Rich’s Chart of the Week segment and that’s on our free site, curzioreseach.com where he highlights one stock, a popular stock and we call it Chart of the Week and he tells you how to trade it and the feedback that we’ve been getting from that, and now we’re going to turn that into the newsletter, which is seeing yeah, just ton of positive feedback and lots of demand with people looking to when we’re going to launch that service. It’s coming out in a couple of weeks, you’ll hear more information about … So that’s something we’re very, very, very excited about. So guys, that’s it for me. Really appreciate all your support. I’ll see you in seven days. Take care.
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