Wall Street Unplugged
Episode: 922July 20, 2022

Why Netflix is now a value stock

Netflix

To start today’s show, Daniel and I discuss the ultimate DIY project: building your own casket. 

Despite horrible sentiment going into the quarter, Netflix (NFLX) reported better-than-expected Q2 earnings yesterday. We share how the company is maturing… and why it’s becoming a value stock.

Next, I compare Netflix’s results to Disney (DIS)… and explain why all streaming companies aren’t created equal. Long-time listeners know I’ve been bearish on Disney for a while… but there’s a simple move it could make to quickly double its stock price.

We also break down the latest earnings from Baker Hughes (BKR) and Halliburton (HAL). While both are in the oil industry, their results and outlook couldn’t be more different.

Bitcoin is finally rallying after the long selloff in the crypto sector. Daniel explains why the recent pain is a long-term positive… and I highlight the big money moving into the space.

Inside this episode:
  • How to build your own casket [0:55]
  • A recap of Netflix’s earnings [4:34]
  • Disney vs. Netflix [8:10]
  • Baker Hughes vs. Halliburton [12:35]
  • How DIS could quickly double its share price [21:40]
  • Bitcoin is finally in rally mode [27:15]
  • Big money is pouring into crypto [34:40]
Transcript

Wall Street Unplugged | 922

Why Netflix is now a value stock

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: How’s it going out there? It’s July 20th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I pick the headlines and tell you what’s really moving these markets. It’s Wednesday, fun day. It’s Daniel Creech Day. Daniel, what’s going on, man? How’s everything?

Daniel Creech: Oh, Frank, it’s wonderful. Another wonderful Wednesday here in Amelia Island. How are you?

Frank Curzio: I’m doing good. So, to those of you who are new listeners, Dan comes in every Wednesday, senior research analyst here at Curzio Research, to discuss the latest things. Not really going on right now, other than every single company reporting earnings, which is going to happen over the next couple weeks.

Daniel Creech: Well, before we get to that, I have something really important to talk to you about.

Frank Curzio: Okay.

Daniel Creech: Frank, you know the DIY trends, do it yourself?

Frank Curzio: Do-it-yourself, yeah.

Daniel Creech: Okay. You’re a do-it-yourself guy. You’re probably a handyman. I am not. I don’t have a house. Thank goodness. I am not the hands-on type. I am the type that can pay for something, make sure it’s gets done, supervised, and I go play golf while things are getting fixed.

Frank Curzio: Nice.

Daniel Creech: But the ultimate do-it-yourself project, Frank. This article starts out and it talks about going over to this woman’s house, and you may not notice the bookshelves are a little bit unique. Okay. They are designed to be removed easily and the two sections of the bookcase are joined at the hinges to serve as her final resting place. Frank, do-it-yourself ultimate project is build your own coffin.

Frank Curzio: I’ve read. I mean, costs have skyrocketed. And thank God I don’t know this, which is a good thing. Some people know this and it’s not a joke, but I mean, costs have skyrocketed. And it’s a business that’s publicly traded companies that do this. I’m not surprised. What I am surprised is, I mean, the amount of money people pay to bury somebody is pretty crazy.

Daniel Creech: Well, basically it’s $10,000. I’ve had a few deaths over the last couple years, it’s basically $10,000, is what you want to assume. And listen to this. So real quick, we’ll get to something serious here, but this just cracked me up. Typical family spends between $2,000 and $3,000 on a coffin. Estimates, that can get crazy depending on how big. When you get buried, Frank, are you going to have a giant tomb in the ground? You know, you go by grave sites and you see some people have the plaque on the ground, you can’t even see. Some people got these buildings that just look like you could live in them. Anyway, what would you think? So, guess lower than $2,000 to $3,000, because obviously do it yourself is to save money. What do you think a “build your own casket kit” starts at?

Frank Curzio: I mean, I would say less than $1,000.

Daniel Creech: $699, Frank. $699, you could do that. Maybe we could get a sponsor for them.

Frank Curzio: It’s so hard to talk about this because like you just said, you have family members and stuff, but-

Daniel Creech: Yeah. You got to be able to smile, I mean, come on.

Frank Curzio: You got to be able to smile about this because one is, the person’s dead. They’re dead. I mean, my mom told me and this is, my dad, we have a nice site from upstate New York. We live on the border of a cemetery, which is a little weird, but we have a beautiful property up there for 30 years, and that was his passion. That’s what he used to. So, that’s where he’s buried, and we took out a plot. My mom wants to get cremated. My mom said she wants to get cremated and spread the ashes. I said, “If you get cremated, I’m not going to spread. All right fine. I’ll spread your ashes. I said, “I’m not spread. Spread your ashes everywhere. I don’t want to be carrying them around spreading your ashes.” I mean, when I die, I don’t want anyone to be thinking about me. I don’t want anybody. Let’s just move on with your life and do what-

Daniel Creech: Oh, come on, Frank-

Frank Curzio: I’m serious. Look-

Daniel Creech: Hey, one quick thing on death, my grandfather who just turned 84, is who I smoke cigars with, that’s our time. And we were sitting there, it’s been several months now, but one of the times I was home and he said, he looks at me, he says, “The best time for a man to die is probably 78 or 79 years old.” And I look at him and I said, “Well, hell, you’re 84.” He says, “That’s how I know.” So, there’s a little lightheartedness about death. So, he’s still doing well, and I’m going to… They’re doing great, but I’m going back up there next month to see everybody. So anyway, that caught my eye, thought we ought to change it up.

Frank Curzio: That is funny. Do yourself projects, I mean, for me, I don’t want someone pushing me around in a wheelchair or deciding… For me, I just want the kids to live their lives and stuff like that. But again, everybody’s different and people I know pay a lot more than $10,000 for stuff like that. But yeah, it is what it is, but just inflation across every industry. Even when you die, you’re going to see it, unfortunate. But what we’re seeing right now is a lot of companies reporting earnings and you’re seeing these inflationary trends hit.

Frank Curzio: Netflix, we know has gotten creamed, gotten destroyed and they came out… Something interesting, they came out. I didn’t think the numbers were that good. I mean, there was some positives, get into advertising, they hired Microsoft which is great. Just the cash flow numbers were pretty good, but I thought it was a kind of week number and you still saw the stock go up. It was up a lot more pre-market, it was up 6%. Now it’s up to 2%, 2 1/2%. Market’s like, eh, if you right now we’re doing this around 10:30, you guys are probably going to listen to this around 5:00 PM, 6:00 PM Eastern Standard Time. But what’d you think about Netflix? There’s a couple takeaways I want to go over, but what did you think of the numbers?

Daniel Creech: I thought the price action was interesting. I knew that they had guided for a loss. And so, I thought 2 million was pretty high. Overall, I think this is just a good lesson on what you say about how sentiment, investor sentiment, the mindset really drive stocks because this isn’t a company, we’ve talked about this in the past, this isn’t a company that I’m really interested in or follow a whole lot. I like the big picture of it because the next big streaming thing is always talked about and there’s such competition on streaming from Disney to Netflix, to everybody else. It’s obviously still way down from its highs. But the fact that their business model has changed from just spin, spin, spin, we talked about this a few quarters ago, Frank, and they basically came out and said, they’re going to manage basically $10B to $15B, if memory serves me correct, in debt, and they’re going to focus on margins, and they want to continue with content.

Daniel Creech: I think the advertising thing is the biggest news. Is it starting next year in 2023, they’re going to have more advertisements. That’s another stream of revenue. I think that shows the maturity of the business in a sense that you can start to grasp it a little bit instead of just, “Hey, we have the next new show.” That’s great. What’s next? It’s always, what have you done for me lately? I think that’s a maturing sign, the advertising revenue and that kind of stuff. But to their credit, they only lost a million subs. They were projected to lose 2 million, and now next quarter, they were projecting to gain subs. I would’ve thought that everybody that had Netflix, had Netflix two years ago, that shows you what I know about the streaming thing.

Frank Curzio: It’s funny because you’ll look at their numbers, and you look at Disney with $130 million, and there’s significant difference there, but the quarter wasn’t that great. But it goes to what I was saying this week, where expectations are the worst of all-time. And we’re seeing sentiment indicators the worst of all-time. I mean, we know inflation’s here, now we’re able to see a lot of these risks. Now, we’re able to calculate. Now, we know what the Fed’s doing is working based on real-time data. We’re seeing commodity prices get crushed across the board. We’re seeing, we’re still seeing inflation. We’re still seeing inflation, not saying that. But what we wanted to see is moderation, which means we’re not going to go crazy and raise rates totally crazy. We’re seeing what’s happening is working and they’re going to go a little bit further at the end, what is it, eight days are going to raise rates probably by 75 basis points, and then we’ll see what they do in September, which is going to be a question mark. I’d be surprised they go more than 50 basis points.

Frank Curzio: But you’re seeing a lot of that stuff where the names down so much, expectations are down so much. You’re looking at a name out of all the finders that this one’s gotten. I think it’s down the most out of everybody next to Facebook is down even more. But yeah, they did issue downside guidance too. For $2.14, $2.76, that’s a big difference. But the $1B free cash flow this year is important because they’re spending $17B on content. And what they said is that’s going to stay constant. So, it’s always like $10B, $12B, $15B, $17B. Now, it’s going to stay constant. You’re going to see free cash flow explode for this company. It’s a billion this year. Some companies projected $4B two years from now and over $2B next year. So, that’s going to be great for the company with a free cash flow coming in.

Frank Curzio: Now want to look, and this is what I want this podcast today to be about because you’ve seen a separation in stocks. You’re looking at Netflix. Netflix is becoming a value stock. It’s trading at 20 times forward earnings. When I look at Disney, Disney’s trading at 25 times forward earnings. Some people may say 20 times forward earnings, their earnings are expected to go 25%. I don’t see that happening. Remember last year they started reporting and they’re like, everyone just did a reset. So, they’re like, “Oh all right. We don’t expect them to get back to pre-COVID levels this year now, it’s going to be next year. That’s perfectly okay. You just give up a year. We’re going to suck for another. We were wrong.

Frank Curzio: All this isn’t going to get great this year. We were wrong. So, just throw out the year, and now we’re just going to push all those. Oh, that target price of $108 for Disney, it’s still intact. But, it’s a 24-month target now. And I understand you have to look from the investment bank perspective, especially when they’re not generating a lot of money in the investment banking side, but Disney’s a company that has a lot of debt, more debt than any of the time it’s history. And they’re going to have to take out more debt to compete if they really want to compete with the big guys who I think AT&T, which is now Discovery, Disney, they’re spending around $15B, $17B. That’s a ton of money to Disney. Here’s the big difference. Disney needs to shut down this Disney Plus business. They just came out and said, “Well, who owns the fastest growing…” Who’s been around forever and is still losing massive amount of money?

Frank Curzio: Last quarter, it was over $800B, if you’re looking for streaming for the division, it’s going to continue to lose money. And the biggest thing, I know, and this is why you’ve seen so many bots on Twitter, Daniel. This is why you see so many bots on Facebook and all these fake accounts and stuff because everybody was looking at these companies as the one metric, there’s always a metric that people look at. And sometimes it’s not earnings, sometimes it’s not sales. Sometimes it’s whatever. Sometimes it’s same source sales. What a lot of these platforms, it’s always about subscriber growth, and Facebook magically has always been able, because that’s why they took over Instagram. The more and more companies that they were able to take over, they were able to get to $3B, close to $3B, and who would have even thought they would even come close to that number. But that was a number everyone’s looking at Facebook, and in the meantime, Twitter, they slow, but they found a way to monetize. And this was like four years ago, three years ago where they slowed in terms of ads and the stock got nailed.

Frank Curzio: So now, what does Disney do? Disney goes, “All right, we’re going to add hundreds of millions of people to this platform.” Everybody loved it. In the meantime, they’re like, “Wow, this is the greatest strategy ever.” It’s not the greatest strategy ever. They were forced to do this because they were hurt more than any other company during COVID, every one of their businesses. You look at theaters, you look at movies, you look at the parks. I mean, it wasn’t just COVID vaccines. It took 12, 18 months, and still they’re not at 100% capacity in the parks.

Frank Curzio: So yeah, it was a big shift and they said, “Wow, here’s a way to generate money and maybe we’ll get a multiple like Netflix.” Well, your multiple Netflix is $20 now, and you’re at $25. So, if you want Netflix multiple, it means you got to come down. But look at average revenue per user because at the end of the day, it’s how much money you make, especially in every session, when you have rates going higher. So, if Disney’s going to look to spend just as much money as their competitors, they’re going to have to take out debt. Debt is much more expensive than it was six months ago, a year ago. But their average revenue per user is $4.35. Okay. And whatever they have, 135M subscribers, they say they’re going to get to 230M in two years. I hope they don’t, the more subscribers they add, the more money they lose. So, their average revenue per user is $4.35. What do you think Netflix is? You have any idea, Daniel?

Daniel Creech: Just based on that, I would guess $7 or $8.

Frank Curzio: $12.

Daniel Creech: Oh, damn.

Frank Curzio: Yes. And now, you’re getting into the advertising model, so for me, which one do you want to buy? You could say, “Well, Disney parks are great.” It is great. That’s their business, marketing, theaters, movies. Why not license your content to all these people who are dying for content? Why did you get into this business? I understood why you got into it, but now it’s a stubbornness that, “Hey, we’re all into this business. So, let’s just go in and go in. We said 230M subscribers.” The more subscribers they add, the more the average revenue per user is going to go down and they’re going to get crushed. They’ll never make money on this division ever in history. They won’t make money on this division, ever. They won’t, they can’t, not if this business model, where we just sign up subscribers or sign subscribers and give it away for free, which they’re doing.

Frank Curzio: So, if Disney gets out of this and starts licensing their content, now they become a massive free cash flow machine. But, they’re fortunate to have all these other businesses that are booming right now compared to Netflix, which is totally tied to streaming and maybe they get into gaming. And now, it’s advertising, where they’re playing catch up. You see this sinking ship and Disney keeps going all in on a market that’s pretty much in a secular decline now. And that’s where the strategy has to change. And it hasn’t changed.

Frank Curzio: But this is the part where you have to look at companies, Dan. We say this all the time where even companies in the same industry, they’re not all the same. And a good example of this is in the oil industry. Two services companies reported, one’s getting destroyed, and one’s doing okay. And you’re looking at Halliburton’s doing okay, and Baker Hughes is getting nailed. And I know you’ve been following these companies, right?

Daniel Creech: Yeah. Baker Hughes is down give or take 10% today. Halliburton reported the other day. I don’t know if it was Monday or Tuesday, but they did well. Their income went up, I think 40 some percent if memory serves me correct. The big there is, like you said, where do you operate? How do you operate? Baker Hughes had over a $300M charge with getting out of Russia because of the sanctions and different things over Russian oil, governments, the war in Ukraine and all that nature. So to your point, not everybody in the same industry is under the same umbrella per se. And I think that’s a good point. It’s easier on our end because we have capital like you, and you can break it down by segments pretty quickly. But for investors out there, just go to the websites, look around the regions, try to figure out where the exposure is.

Daniel Creech: You’ve talked a lot about this with small caps right now, trading at great values when you factor in growth. I think you said basically the cheapest they’ve ever been, when you factor in growth. Well, why is that okay, or why would you look further into that? Because most small caps do business here in the United States, you don’t have outside international worries. Not that everything’s perfect here, but just like the oil and gas industry. Hey, if you’re Baker Hughes, it was wow. When you pull up those press releases, Frank, you have Baker Hughes on one side, Halliburton on the other. Halliburton warns of tough times ahead, lower margins, less work basically for oil and services on rigs and different things. Baker Hughes is talking about a multi-year tailwind of momentum. Frank, that’s like you and me, it’s saying, “Hey, my newsletter’s doing fantastic. How’s yours?” “All newsletter industry’s terrible. We’re out of it.” “Oh, well we’re signing up people left and right.”

Daniel Creech: It just shows it depends on where you operate. Obviously, management has a key factor in this, and I’m not badmouthing Baker Hughes at all. But when you have to get out of Russia, when you have to turn off certain revenue streams, they get a lot of money internationally and that’s just going to hurt. And then you factor in strong dollars. And I know the dollars pulling back, but this earning season will be key because you’re going to have your favorite words, Xe currency and adjusted earnings is another good one.

Frank Curzio: I know.

Daniel Creech: For individual investors out there, you got to pay attention to where they’re operating, in what environments they are. And then you want management to obviously execute, that goes without saying, but it’s not Baker Hughes’ fault. We’ll see how they rebound. But I’m just telling you, when you look at the same industry as oil and gas services, and you have one saying, we got years of momentum and things are going really good and earnings and everything, cash flow are going up. And they also implemented a dividend policy, which is a flexible rate. In cow mine, the chicken people did that too. I need to look into that, but that’s something that going forward when we’re in a higher interest rate environment, interest rates matter, investors need to pay attention to dividend policy because I think that’s going to continue to attract capital as the world continues to get tougher and tougher from an economic standpoint.

Frank Curzio: Yeah. And it’s important when, and this is why it matters. Because you may think, hey oil companies, just buy oil, it’s going to go up. Yes, it’s pulled back. But just the fundamentals are fantastic. We’re going to see oil prices probably go higher. Even if they stay at these levels, these guys are going to be printing money. They’re going to continue to drill to make money in every single oil well that they drill at this price even if you’re offshore at $100 very easily. So, margins are crazy, and these guys were lean coming in. So, that’s showed the explosion oil stocks early on and yes, they pulled back because people think we’re in a recession. So, you just can’t go out there and buy any oil stock. I mean that works in a full blown bull market, but now, you’ve seen oil pull back.

Frank Curzio: So now, people are saying, “You got to buy oil.” It depends because you have to look under the hood. And that’s what I love about this. Because it makes us more relevant where if you had crypto, it didn’t matter what crypto you owned during a certain period. You could have been up 10,000%. Didn’t matter how great a crypto, didn’t even matter if you knew anything about it or how to put in your account, you’re going to be up because the whole market goes up. But when you’re looking at these individual companies, and if you’re on our YouTube channel, I’m going to share my screen here because this is pretty cool. So, this is an expensive platform, S&P Capital IQ. So, we look at segment data, and I turn to percentages. When you look at Baker Hughes, not only do they have a lot of business in Russia, which is important, because you have to shut off Russia or you’re dead. You have-

Daniel Creech: Russia, Russia, Russia.

Frank Curzio: Russia, you got to shut off Russia, no matter what. That’s what hurt Netflix last quarter too. They would’ve had positive growth instead of negative growth for their subscribers if they were able to keep Russia. But if you’re doing business in Russia, you’re done. You’ll get crucified. So, you got to get out of Russia and I get it, whatever. And they have a lot, so does Russia. But look, if you see this non-US currency, so revenue, you look at 2018, it’s 71% came from. Now it’s almost 80% of their revenue comes from outside the United States. When you look at Halliburton, that number is a lot less, so if you look at Halliburton. Again, I’m showing this on my screen. They go down here in percentages. You’re looking at North America. I mean, that’s the assets right here. It’s over 40%. That’s a significant difference. It still hurts a little bit. But yeah, they have Middle East, Asia that’s pretty good exposure, but where it comes to Europe, that’s a little tougher, margins are tough. So, they don’t have that much exposure where Baker Hughes has all this exposure.

Frank Curzio: So now, what does that mean? You’re looking at a company that not only do they have to take write downs from Russia, but Baker Hughes is, they’re not linked to the cyclical market in oil where now you’re seeing all of it change, the growth. And remember, even though you’re seeing GDP and numbers are coming down, which is reflecting in oil, that’s why you’re seeing it pull back. This cyclical turnaround where prices, where futures are priced at a zero at one time not too long ago during COVID, you can’t just buy any oil company here because this company is not linked to the biggest trend that’s going on right now.

Frank Curzio: And one, the US dollar’s at 20-year highs. If you don’t understand what that means, fine. Just know the more business you have overseas, the worse it is, your earnings are going to get hit. I learned a valuable lesson when I invested in a lot of Canadian stocks and private placements where I think it was 2011, 2012 where the Canadian was on par with our dollar. And then whatever, say you invest $100,000 or $1,000, but say to make numbers easy, you invested $100,000. Now that’s like a 30% difference. You bring that back, and it’s like $70K. That’s a big difference. You see, holy shit, what just happened? So, when you actually see the difference in that, you’re like, “Wait a second. I mean, I’m up 20%, and yet I’m down.” And you’re like, “What the hell just happened?”

Frank Curzio: That’s what’s going on with other countries. So, you have to be careful. The companies that have international exposure going into this earning season, they get murdered. And they’re going to be like Xe currency. This Xe, that’s real dollars. I don’t care if it’s Xe currency, whatever, because Xe currency, when you have a write down, it’s not a pure number. It’s not a apples to apples comparison because it’s a one timer. This currency thing is not a one timer. Yes, it’s a lot higher. It might come down a little bit. But you can’t say, well Xe currency, like you’re not going to have that problem next quarter, the quarter after, especially if you think we’re going into recession, which by the way, the recessionary indicator, the number one recession indicator forever has been an inverted yield curve. And it’s more wider between a 10-year and two-year than any of the time in the past 20 years.

Frank Curzio: So recession, it’s not a red flag. It’s sticking the red flag in your face and sticking it down in your throat. That’s the red flag that we’re seeing for a recession. So, a recession is coming, but you could see the difference with Baker Hughes. And then if you put in and these are oil services companies and you think they should be printing money. All the oil companies, they should have pricing power, even though they talk about inflation because everyone needs to drill more right now, forcing drilling down our throat. We need to drill more because prices are so high.

Frank Curzio: Take a company like Pioneer Resources. Again, it’s different. It’s a driller, but 100% US focused in shale. Holy shit. Now, they’re linked exactly to this cycle of oil prices surging of US based operations, a dollar doesn’t hurt them. This is what they’re linked to, where they could take the money they’re generating in the US and buy cheaper assets overseas where we’re seeing again, prices explode and who knows what Russia and turning off fricking Europe and natural gas. I mean, it’s a fricking disaster over there. Not to mention, it’s like 105 degrees in record heat. It doesn’t get worse. It’s like, you just got run over by a bus and you lived and then a tiger eats you. What the hell just happened? So, there’s a difference between companies, guys, and you have to realize that.

Frank Curzio: There’s a big difference between Baker Hughes and Halliburton, even though they’re in the same industry where JP Morgan got this right, going to give them credit. About a month ago, they significantly lowered estimates of Baker Hughes. This stock is down just as much as everyone else off it’s high, it’s 35%. It should be down even more because this isn’t a company that you say, “Hey, I want to link this to huge demand coming in oil industry and oil prices going hard. They’re not linked to the same things other companies are linked within oil. So, you have to be careful. You have to look under the hood because that international exposure is a killer. It could be great if things are horrible in the US, that’s awesome. But right now, that’s not the case. With the dollar being this strong and everybody goes, everyone said the dollar’s going to disappear and it’s not going to be a reserved currency. And holy shit. Since the 70s, since the 60s, 70s, 80s, 90s, we’ve been saying that. And videos, the same guys who are 80 years old saying it.

Frank Curzio: And yet everyone, the whole entire world, goes to the dollar when shit’s bad. And that’s going to continue forever. If not forever, well, beyond almost anyone’s lifetime that’s alive right now. You have to factor in those things. You have to look at companies. Just like Disney and Netflix, Netflix is a cheaper company, high average revenue per user, some catalyst there with advertising, Microsoft, cash flow generation. They’re doing well, but Disney, they continue to get crushed and lose a fortune on this. And they keep pushing more and more into this business that is, so much of the growth has been pushed through right through COVID where people were home. They were forced to do it. Now there’s less time people are at home. You’re seeing the industry statistics.

Frank Curzio: Now people are not streaming as much as they did, and yet, they’re full, all in on this. And this is about new content, creating new content, not a library that you have. Again, I say it, I joke around, but no one’s going to watch Dumbo 47 times. I’m sorry. They’re not going to do that. That’s not what streaming’s about. It’s a new content that just comes out, binge watching and stuff. So, you got to be careful with Disney. If they get out of this business, this thing will explode. If they keep pushing in it’s going to be a massive drag on earnings. Again, the whole year has been pushed out with Disney, the whole year. Like they say, “Oh, all right, sorry. Forget about this year.” They’re going to say the same thing again. Forget about this, because streaming is just a drag on cash flow. It’s a mass amount of money. You’re losing money.

Frank Curzio: Hulu’s been around forever. Hulu is a great platform. They have live streaming on Hulu. It’s a great platform. They’ve been losing money every single year since it’s been in existence. It’s one of the oldest platforms in the world. It shows you that business model is very difficult and Disney’s going all in at the exact worst time.

Daniel Creech: It’s not going to happen, but let’s play a big what if. So, if Disney came out and said, they’re getting out of streaming, and they’re only going to focus on Hulu, and they’re going to get back to the mouse tactics, you would get bullish on them then?

Frank Curzio: Yeah. Oh yeah. The stock goes at $200. I think the stock easily doubles from here. The stock will get hit at the beginning.

Daniel Creech: Okay.

Frank Curzio: Because now you’re looking at up-

Daniel Creech: It’s what, $90-ish?

Frank Curzio: The stock. Yeah. It’s probably $100.

Daniel Creech: It’s under $100.

Frank Curzio: It’s around $100 because, yeah.

Daniel Creech: All right, you heard it here. Frank has not been bullish on Disney. We need to write a letter to the CEO, “Hey, this is what you…” We could be activist investors. “This is what you need to get out of streaming. Bam, your stock will go up.”

Frank Curzio: Look, you have to realize, and this is the hardest thing to do if you super bullish or super bearish on a company. I’m not, I don’t hate Disney. Okay. I like Disney, but I hate where the stock is trading. And I don’t think it should be a 25 times forward earnings. And let’s see what they report. They’re reporting in three weeks from now, so it’s a little bit later. I think it’s the first week in August, August 7th or 8th, around there. Let’s see what they report. They still haven’t even come close to having the earnings they had pre-COVID. One of the only companies outside of Boeing. Everyone else has come back tremendously, even hotels, even cruises, you’re seeing demand. You’re seeing even for airlines record revenue. Margins are getting hurt in some of these businesses, but with labor costs and stuff. But for Disney, because not only are you… You got to take charges on this business, but now, you have all this great content and Marvel because their best content, their greatest content, they have the greatest franchise in the world, Marvel.

Frank Curzio: By far the greatest franchise in the world. Every time they have these movies, bam, it’s a billion dollars. A billion dollars plus in total sales in global sales. A billion dollars plus, and they cannot put this on the streaming platform until everyone saw them two or three times in the movie theaters. So, you have all this, but think about when that content comes out and how much you could license it for. Now, you’re making a fortune off of it, off of licensing this content instead of trying to produce it on your platform. And I think they took $1B charge. I had to pay Netflix $1B not long ago because they got out of their licensing deal early because they said, “Okay, we’re sick of you playing our Marvel content. So, we’re going to hold it on Disney.” But it’s so easy to license this compared to running this platform, which constantly requires, I mean so much spend in new content, $17B, $20B to compete. They know that. They have the statistics in front of them. This is stubbornness.

Frank Curzio: You got to get out. Streaming in secular decline. You don’t want to be in this industry, yet you have incredible pricing power for all your parks. I mean, you’re just brilliant at that. Disney entertainment theaters, that’s their strength. They’re the greatest marketing company on earth. It’s revolved around a mouse for 50, 60, 70 years. It’s a mouse that people, I mean, they don’t even have anything that goes along with that mouse. They don’t have any movies with Mickey Mouse anymore. It’s the greatest company when it comes to marketing, but yet, this is a failure and it’s going to get… You don’t deserve to be trading at a premier for Disney, especially when you’re not growing earnings like everybody else.

Frank Curzio: For me, I think Netflix is the better play here. And just like with Baker Hughes and Halliburton, Halliburton is a better play. Don’t buy Baker Hughes here on the selloff, because they’re going to continue to see a drag on earnings as long as this dollar is strong and this whole Russia… They’re really in Russia, Russia’s a big oil place. They drill a lot. Baker Hughes had a lot of exposure, good for them. This is bad that Russia, Ukraine, everyone getting out of Russia. This is one of the companies that had a lot of exposure to Russia where some other ones had very little exposure, Baker Hughes has a lot. And now, not only are you taking write downs on that, but you’re shutting that business off, where do you go?

Daniel Creech: Yeah.

Frank Curzio: So now, you come back to the US. So, Halliburton, a much better play on here, but even with the services companies and Halliburton has a lot of international exposure as well. If you going to get into this, the drillers that drill in the US, especially shale drillers, that’s where you want to go right now in this pullback. I mean, that’s just for me, that’s what I think.

Daniel Creech: No. That’s fine because we have two completely different sectors with a couple of companies in each, and it just shows you how, just because you’re under the same umbrella or in the same environment, not all stocks are created equal. And I think there’s value to that with investors to pay attention to that. You can sift through your own portfolios and see that. And that’s what’s great about earning season. We’ve been talking about this for over a year now, hoping that things separate and trade more in line with “what they should” with earnings management, et cetera. And it’s really taken shape right now. I mean, it should continue to accelerate. I think this earning season will as we get in the heart of things and that’s ultimately a very good thing, I think for all investors.

Frank Curzio: No, I agree. And the last thing I want to talk about is Bitcoin. Bitcoin’s really catching a bit here. We’ve seen this all over the place. You know we’ve been bullish on Bitcoin for a while, talking through this downturn. I mean, it hit $18,000, and we’re seeing in Bitcoin what we see across a lot of industries, especially biotech. The leverage that was in biotech is incredible because some of these names are down 80%. Even some of the biotech names that generate revenue, tens of millions of revenue have products on the market, have a great pipeline. Everything has gotten nailed because when you’re on margin, and you’re leveraged what happens, you’re being forced to sell.

Frank Curzio: Say, if you own your own fitness place, and you’re a trainer and you have 20 different machines and all of a sudden you have a huge debt payment and you’re like, “Oh my God, I got to pay it.” What are you going to do? You going to go out, you got to sell machines within a month. This machine’s $2,000. You have to sell it and someone’s going to be like, “No, I’ll pay a thousand dollars for it.” You got to take it, right? So, it’s forced selling. And that’s the greatest market to have if you have cash on the sidelines, when you see forced selling. And the forced selling and the leverage in Bitcoin has been incredible and we’re seeing companies blow up. And this is a great thing. Why? Because there’s a lot of shit in this market and this is where the most innovation, and when I say innovation, this is like the invention of 5G, AI, cloud, all the innovation outside of crypto are all extensions on existing trends. It’s not innovation that’s making AI better. It’s making data analytics better. It’s making 5G, is now pushing in, 5G just came. It’s not even here in a lot of places. Now, you’re starting to see it show up on your phone, but it’s all extensions on how to make these great existing trends better.

Frank Curzio: With Bitcoin where you’re seeing Defi, you’re seeing Web3, this is where the money from the venture capital funds in Q2 so this data is just being released, seven out of 10, their biggest investments in venture capitalists… Venture capitalists, these aren’t like investors picking off Berkshire and Buffet buying Occidental, which been around for a while. And you’re like, “Hey, let me follow in.” We’re talking about companies that are investing in early stage things that they believe could change the world. Seven out of 10 of the largest venture capitalist funds, their investments have been at Web3, $120B has been invested in a metaverse just in the first six months. To put that perspective, guys, that is the size of the cancer market in North America. That’s how much you’ve invested in a metaverse, which is a trend most people still don’t understand. You will, just like it took you a long time to understand cloud.

Frank Curzio: Now, here’s where I’m going with this, Daniel. When you look at Bitcoin, this forced selling, you get all the garbage out. There’s amazing trends in here. There’s great companies. I always said, 90% of this is bullshit. You’re seeing that get weeded out. Look what’s happened over the past seven days, listen to these returns, Daniel. We all know Bitcoin. Bitcoin shot up nicely. I mean, it’s come down low and it’s up 25%, that’s nothing. Ethereum’s up 50% in the past seven days. Polygon up 70% in the past seven days. Avalanche up 50%, past seven days. Salona up 40% past seven days. These are all top 10, 15 cryptocurrencies. These are the good ones.

Frank Curzio: A lot of these could be found in our portfolio. Yes, we got nailed on them, but the good stuff is going to rise. We see that during dot com bubbles. We see that all the time where all the shit gets nailed and everyone was like, “This dot com thing is not…” Remember March, 2000 and into that. I don’t know if you remember that as much Daniel, but everyone thought this whole dot com thing, the internet is bullshit. And we knew it. We told you it was all bullshit and it’s the world, the whole entire world’s digital. So, it’s just a matter of time where you get all this garbage and then you get it filtered out. And now, all the cream rises to the top and you are able to buy a lot of these great companies.

Frank Curzio: There’s great companies within crypto. A lot of them that we’re speaking to, even with our metaverse push and virtual purchasing making the largest virtual real estate purchase in history with $5M. This industry is ripe for massive returns. It’s sold off incredibly. This is a great market, just like it is in biotech, just like it is in small caps with the forced selling. But you’re seeing Bitcoin, which we follow. It’s really nice to see you catch a bid because hopefully a lot of this crap is over with.

Daniel Creech: It is. And it’s to your point, when it, when it really crashed from mid-twenties down to $17,000 or $18,000, whatever the low was or the low, as of right now, a lot of that just did seem like liquidation, forced selling, a lot of margin calls and all that kind of stuff. So, you need this as somebody that’s biased and is bullish on it, you need to see it rally like this because it just beats people up. And to your point, it gets to sentiment and people just get bogged down. But that’s just part of the markets. I mean, markets go up, markets go down. It’s not fun. It’s easy to sit here and say that.

Daniel Creech: I’m down on Galaxy Digital a lot. I’ve talked about that in the past, Mike Novogratz, CEO for Galaxy Digital did a sit down with Bloomberg yesterday. They had quite a crypto lineup, and he was talking about that forced selling and things like that. Now, it’ll be interesting because he was talking about Luna and Terra and the whole $40B or $50B collapse. And then, you have Celsius and 3M, or not 3M, but Three Arrows hedge fund and all that kind of stuff. And remember, again, in the excuse of sounding like a know it all, I apologize upfront, there’s nothing new under the sun. It’s just over leverage and bad risk management is how things like this blow up.

Daniel Creech: What’s interesting to me is that Mike Novogratz was talking about this, him and Galaxy Digital had money in Luna or Terra back when. I think they got out of it for a profit or a small loss instead of when it was completely collapsed. But it’ll be interesting, and I’ll be digging through that when Galaxy Digital reports their next quarter earnings. They put out their July numbers for June on assets under management. Of course, they took a dip down. But that’s just one of the best macro plays on Bitcoin and Web3 and everything else.

Daniel Creech: The next two earnings releases from them are going to be huge because it’s going to give you insight into the industry, big money sloshing around, and just yesterday he reaffirmed and recommitted on, “Hey, there is just so much international money.” Speaking of Saudi Arabia and over in Asia about how much wants to get in if they didn’t get in around $16, $17, or even low twenties, I don’t know when they’re getting in. Time will tell whether who’s getting in and kind of doing this rally that we’re seeing right now up to $24,000. But overall, it’s great for the sector. I was surprised it didn’t go to $15 or $12 just because when you look at charts and you look at 80% pullbacks, you get to that $12,000 number. Personally and selfishly, I don’t want it to go that low. I want it to go back to $60, but it’s just part of the environment. It’s part of the cycle. And it’s good for investors.

Daniel Creech: If you’re nervous about this, or you’re stressed to the point where you can’t sleep, you probably have too much in it and you need to look at risk management position sizing. Other than that, nothing has changed outside of the big picture for crypto, Web 3.0 in general, it’s an extension of the internet. It’s a better experience. It’s more ownership, and Bitcoin still holds the fundamental value of there’s a limit to it. And people are going to value limit. What they’re going to value that as, I don’t know, but my guess is it’s going to be a lot higher if politicians and world governments continue down the road they’re on.

Frank Curzio: Here’s why it’s going to get much higher. It went to over $60K without the help of institutions, because it wasn’t regulation. You can’t really invest in things unless you have some kind of framework and there’s still no framework, but at least the current administration came out and said, “Okay, well there is going to be framework.” And that was a big deal. I mean, Novogratz, a lot of the institutions who are in this said, that’s a big deal. Let me explain why it’s a big deal. Because $60,000, just from the retail investors, obviously a lot of that is leverage, which we’re seeing.

Frank Curzio: So, how do we get back there? And it’s so funny because the people who want to hold Bitcoin forever will say the same thing. I mentioned this in the past that, “Oh yeah, we’re going to hold it forever, and we hate Wall Street, and we don’t want Wall Street in this. And this is DeFi and all this stuff.” You need Wall Street in this, if you want to get to $60K.So, if you are someone at Bitcoin holding it forever, you want to pray that the big guys are going to get in. Why? Because BlackRock has $10T in assets. And here’s what they just said recently, a couple days ago, they said, “The crypto asset market witnessed a steep downturn, but we still see more interest from institutional clients about how to efficiently access these assets using our technology and products.” That’s $10T. You know why they have to go in? Because their clients want it. Because Fidelity has $4.5T assets. I don’t know how much to have in retirement. I’m sure it’s around $1T at least, whatever, 25% of that. And they just came out not long ago, a couple months ago, we talked about this Daniel, how they’re going to provide allocation to Bitcoin so the allocation of Bitcoin’s going to be, I think it’s 20%, they said.

Daniel Creech: They’re allowed 20%.

Frank Curzio: They’re allowed 20%.

Daniel Creech: You got hung up on that.

Frank Curzio: And I got hung up on that because I thought that was way too much. I think you speculate, but all right. So 20%, let’s start at 20%. 20% is $100M of that. $100M could be pushed into this. So at $100M, and you’re looking at Bitcoin’s market cap is $450B, so you’re looking at what 20% of its market cap. Even at $50M, say it’s half or 10% here. You’re looking at 11% of the market cap of Bitcoin that could see inflows into Bitcoin just from Fidelity. So Fidelity, the fact that they did that is forcing BlackRock’s hand because people are going to leave BlackRock and say, “All right, I want get into cryptos. I want to get into Bitcoin. A lot of people want it, the institutions want it, institutional clients want it.

Frank Curzio: And then you look at State Street, trillions coming down the line. This is the money that has yet to float into this. Now that you’re seeing all this garbage gone and a lot, 60%, 70% declines, you’re going to see more and more money push into this. And even Novogratz, what did he say about the decline? I mean, he was a little bit early to this, but at least he came out and said it, someone who deals with institutions, a lot of them talk to him, ex-Goldman Sachs guy through Galaxy Digital, you could talk about, I mean, I know you listened to that call the other day.

Daniel Creech: Yeah. He just continues to say that there’s a lot of interest from Asia, Saudi Arabia, big wealth institution funds. Like I said, it’ll be interesting to see on the next quarterly earnings. He didn’t dive into that, he just keeps saying there’s a lot, but all the big bankers, not all, but essentially a lot of the big bankers have always talked about this international money coming in. It needs to actually come in. Like I said, if they didn’t get in around, and I’m not saying that the bottom is in, I don’t have a crystal ball. However, if they didn’t start allocating money in the low twenties or high teens, I don’t know what they’re waiting on. Maybe it’s regulations, who knows what doors need to be open for them to make the decision on their side. But we’re getting there is the point. And until that changes and to your point with BlackRock saying that, I am no fan of BlackRock, I can’t stand those guys. However, you need to pay attention to them because they’re the elephant in the room, and they have a lot of power and unless they’re just absolutely lying through their teeth, which is a possibility because they’re idiots. I just don’t think they’re lying about that in general. I think-

Frank Curzio: Just the force selling part too.

Daniel Creech: Yeah, exactly. Well, the forced selling, absolutely.

Frank Curzio: When he said the forced selling we’re seeing, pretty close to an end, and that’s important. Because now, you’ve just seen the leverage blowout and the forced selling also came, I read article, was it $300M of miners? So, when you’re mining for cryptocurrency, a lot of these guys are keeping Bitcoin in the balance sheet or whatever they’re mining for, theory and whatever they’re mining for on the balance sheet. And they wind up selling a lot of that to cover their costs as the market got crushed. And again, that’s a lot of selling of Bitcoin. So, you’re seeing a lot of this selling and that’s where you’re seeing even the market where everyone is leaning to one side and everyone’s like, “Holy cow.” It’s bearish all-time sentiment where again just all-time from contrarian.

Frank Curzio: Your radar’s got to go up where things are not absolutely horrible. They’re not good. All right. They’re not good. We want to see inflation moderate. We’re seeing it in real time data. We haven’t seen CPI PPR. We’re definitely going to see that next month and going forward. But we want to see inflation come down. It’s still very high. There’s some companies that are trading at evaluations that are a little crazy, even some of these technology companies. But man, if you’re looking at small caps, you’re looking at biotech, you’re looking at Bitcoin. And I mentioned this yesterday in podcast too, it’s even some of these companies that came public in the past 18 months are down 80%, they raised a shit load of cash. They’re sitting on tons of cash. Their growth is still intact, but they came out 20, 30 times sales because the retail environment was great.

Frank Curzio: Now, it’s a lot less than that. And these guys have very good balance sheets, and you’re still seeing growth. While it’s slow, you’re still seeing growth that’s a lot faster than the overall markets, start looking at those names as well, because those could be some good names. So, there’s a lot of interest. There’s a lot of things going on right now that I really like, but you could see the tide turning a little bit. And I don’t know if this is the absolute bottom, but there’s definitely a lot of names that I like. And I believe you could almost buy almost any name and you’ll probably be up in it over the next 18 months, which is saying something.

Daniel Creech: It’s a bottom. We don’t know if it’s the bottom, but time will tell. But that doesn’t mean you have to wait on the sidelines until the bottom.

Frank Curzio: I hate that too. I freaking hate that.

Daniel Creech: You hate everything. You don’t like me bashing the fans, you don’t like-

Frank Curzio: No, just make a call. The other day, really quick, we’re late. But the other day I went out to restaurant, and she’s like, “Empanadas or?” It was what kind of…

Daniel Creech: Short ribs.

Frank Curzio: Yeah. Short ribs or something. Those are two specials and I’m like, “Well, which one’s better?” And she’s like, “I don’t know.” And I felt, I was like, “What do you mean you don’t know?” Just make something up. Imagine if I said that, “Frank, what do you think? What do you think is market going to go up or go down?” “I don’t know.” It’s just, make a call. Is the ultimate bottom. I think it’s the bottom. Of course, we can come down low, but even if we come down lower, I see it as a January when we saw the credit crisis. So, you’re looking at January, 2010 when the market did come back or 2008 was bad. You had January, 2000, everyone thought that was bottom was January, 2009.And then from January to March, it came down a lot more. Okay. Like another 25, 30%. And then, we shot up immediately and went a lot higher. So, it’s going to be volatile. We’re going to see a lot of crazy numbers over the next, probably two months. But going in September, I think you have to be long because I can’t see the Fed, not getting a little dovish and saying, “Okay, this is working. We’re just going to pull back a little bit.” And I think that’s going to be a big boom to the market. Maybe you’re seeing that right now, why stocks are really starting to take off, but a lot of names are up sharply off their highs. If you’re looking at the NASDAQ, Daniel, I said this yesterday, if the NASDAQ goes up 15%, it’s still going to be down 20% from it ties. Yep. So, think about that’s how far down we are. It’s pricing in the worst ever. And to me, that’s a good buying opportunity. It’s going to get a little crazy. But as you can see, there’s a lot of things that’ll work and a lot of things are starting to pop right now, which is good news. It’s always good news.

Daniel Creech: Absolutely. Yeah.

Frank Curzio: It’s better than 11 to 12 weeks of being down. Holy shit. Think about that. Holy shit. You’re doing a podcast. I’m like, “Hey guys, hang in there, you’ll be fine.” Second week, third week, fourth week. I mean, we’ve never seen that before in history. I mean, how many times I keep saying it. In history of the markets, I mean, 30 years, I can say, well, 20 years, in history.

Daniel Creech: Yeah. History’s a long time.

Frank Curzio: Pre-World War II. So, a lot of opportunities and Dan, a great research on Baker Hughes and everything and just talk about that and Bitcoin and stuff like that, that’s a really good job. Earnings season is our favorite time, as you can see, that’s why this podcast’s running 40 minutes to 30 minutes, and we are going to break down a lot of earnings for you going forward. Sounds good?

Daniel Creech: All right. Sounds good. Cheers.

Frank Curzio: All right guys. So, if questions, comments feel free to email Daniel at…

Daniel Creech: daniel@curzioresearch.com.

Frank Curzio: Any negative goes to Daniel. Any positives goes to frank@curzioresearch.com.

Daniel Creech: Vent to me. I’m here.

Frank Curzio: We’re here for you to vent, whatever you want vent. At least the market condition is a little bit better. So guys, that’s it for us. Really appreciate all your support and tomorrow really good interview, one of your favorite guests. So, I’ll see you tomorrow. 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
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 Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 11 million times.

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