Understanding The Big Tech Stocks

Joe Weisenthal (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, you know, we're right in the middle of one of my favorite times of the year. Do you know what that is?

Tracy Alloway (0:25)

Super Bowl? I don't know.

Joe Weisenthal (0:28)

It's not the Super Bowl.

Tracy Alloway (0:30)

It was the Super Bowl last night.

Joe Weisenthal (0:31)

Yeah, for those listening, we're recording this the day after the Super Bowl. I didn't even watch it, and from what I understand, it was really boring, so I guess I didn't miss out on anything.

I mean, it is February, but February is not one of my favorite times of the year because the weather is pretty miserable. No, we are in the middle, or maybe slightly later part of the middle of our earnings season.

Tracy Alloway (0:49)

What makes you like earnings season so much?

Joe Weisenthal (0:52)

Well, so for those who don't know, and probably everyone does, most companies report their earnings four times a year, and they tend to cluster over the span of a few weeks.

And so much of the time, we talk macro, we talk about the Fed, we talk about trade, inflation, and economic data, whatever. And then every once in a while, we get to pause and actually hear from the companies themselves and really get a sort of a corporate perspective on how things are going. And of course, from an investor perspective, this is what really matters, because you could sort of have these broad movements in other times of the year. But if you want to know how sort of specific investment in companies are doing, this is when you glean the most sort of raw information.

Tracy Alloway (1:35)

So I'm going to take the other side of this and say that I normally don't get that excited about earnings season. However, I'm willing to admit that this time around, it is slightly more interesting than usual, but because we have a lot of really broad sort of macro economic themes that everyone is currently talking about. So a couple that spring to mind, we have the slowdown in China, whether or not that's actually affecting US companies earnings. And we've seen some really heavy hitters, including Caterpillar and Apple sort of blame things on a slowdown in China. We have the retail apocalypse in the US as well. This idea that bricks and mortar stores are doing worse than other types of stores. So some big, big thematic issues and questions currently running through earnings season.

Joe Weisenthal (2:24)

Yeah, absolutely. And especially the violent sell off that we saw at the end of 2018 A lot of people, you know, people adjust their future expectations based on what just happened. So we saw earnings estimates come down for a lot of companies. And everybody wanted to know, because in the end fundamentals in theory are what drive markets, was that just a blip or are companies really seeing a decline in profits?

And the other thing that I think is interesting from a sort of sectoral perspective is that for the last couple of years, especially a handful of really red hot tech stocks that everyone knows about have just dominated markets.

If you own them, you've done really well. Of course, I'm talking about companies like Amazon and Facebook and Netflix and so on, Apple, of course. And each one of them has sort of stumbled a little bit for different reasons, and they've come well off their highs from last summer. And I think going forward, there's still this big question, are they just gonna go back to dominating their respective industries like they did in 2015 through 2017, or did the sharp re-rating of these stocks sort of represent something fundamental where they're just not going to be able to put up numbers like they did in the past?

Tracy Alloway (3:41)

Right, the famous Feng stocks, which led the market higher basically for the past few years, and then suddenly led it very, very sharply lower in the latter half of last year. And to your point about a sharp re-rating, you kind of have to wonder what happened to make everyone sort of collectively wake up and realize that their expectations for all these companies were sort of out of whack of the fundamentals. Like it's a bit chicken and egg, isn't it? Is it the market or is it actually that the fundamental picture has changed?

Joe Weisenthal (4:12)

Well, that's very well put. And today's guest on the Odd Lots podcast, I think is someone very well positioned to talk about it.