Growth And Earnings Recovery, Probable Fed Pivot And High Quality Stocks With Victor Dergunov

Summary:

• Victor Dergunov runs The Financial Prophet and today talks Q2 earnings, Fed’s probable pivot, inflation, and high quality stocks.
• Continue to buy high quality companies on pullbacks and why Victor believes in Tesla.
• Tech sector favorites and Netflix earnings (it’s the best, stickiest platform in the world).

Listen below or on the go via Apple Podcasts or Spotify.

Victor Dergunov runs The Financial Prophet and today talks Q2 earnings, the Fed’s probable pivot, inflation, and high quality stocks.

• 3:00 – Continue to buy high quality companies on pullbacks
• 9:00 – Why Victor believes in Tesla (NASDAQ:TSLA)
• 16:20 – Easier monetary stance coming from Fed?
• 33:40 – Tech sector favorites, still early in AI revolution
• 43:20 – Netflix (NASDAQ:NFLX) earnings, and why it’s the best, stickiest platform in the world
  • Free trial for The Financial Prophet

Transcript

Rena Sherbill: Okay. Victor Dergunov, who runs the Investing Group The Financial Prophet on Seeking Alpha and has written many important analysis articles on our site, welcome to Investing Experts. Welcome back.

Victor Dergunov: Very nice to be here. Thank you for having me. It’s my pleasure.

RS: We stole you from a James Foord Pragmatic Investor episode, but this is officially your first official sit down with us. So, I appreciate you joining us, and I feel like, well, I don’t feel like I know that you’re – that episode that you were talking about Palantir (PLTR) and earnings got a lot of love from a lot of people, and I bet a lot of people are excited to hear you talking about the markets and stock.

So, it’s July 17th. We’re both far away from America, but focused on the American markets. What are you looking at in the American markets? What are you focused on, and what are you paying most attention to right now?

VD: Yes. So, first thing about Palantir. And, yes, that was what I discussed with James Foord. That was excellent. And then, of course, we saw the massive move in the share price about a 100% in just a month or so. So, Palantir, massive move, but I’m still – I still have my position, and I think the company has a lot more upside potential despite probable phase of consolidation, possibly even a pullback from here. But long-term, it’s a winner in my view.

Also, about the markets, it’s interesting you say that we’re far from America, but we’re discussing American markets. And to me, it’s like, no matter where you are in the world, America is the market because we have the best tech companies in the world, and, basically, we just have the best companies in the world. And that’s what makes America such a dynamic place, such a dynamic market. And, yes, it’s definitely the best stock market in the world for sure.

So, what I’m looking for, oh, so many things to cover and discuss, but let’s start with the amazing returns this year. Nasdaq shooting up by, like, 35% year-to-date. Just great, great results in many top companies. And so, and a lot of people are rightfully asking, how much do we have left for the second half of the year? Are we going to have a correction, a crash? Are we going to – is there more upside potential in tech stocks? So, the way I view the overall tech team here is that, yes, we’ve come up a long way.

We’ve really – we’ve appreciated quite a bit from the lows, but we have to put things in perspective. The stock market was so oversold and especially quality tech companies like Tesla (TSLA) at a $100 or NVIDIA (NVDA) close to a $100, (AMD) around $50, Palantir at $6. I mean, the list goes on and on. So, so many of the amazing tech companies that have so much growth potential. And they’re absolutely unique and they got just sold down to absurdly low levels.

So, of course, it’s natural that we see a significant recovery here. And now we can probably go through a bit of a consolidation phase in many names. So, maybe we have a little period of sideways action, maybe some pullbacks. And we’ve already seen some 20%, 30% pullbacks in many of the stocks that have skyrocketed recently like Palantir and many other names. Tesla had a big correction.

So, my view is that we need to continue buying high quality companies on pullbacks here. So, we see – if we get the opportunity, a nice pullback in a quality stock, 20% to 30%. I think it’s a good time to pull the trigger on many names, and we should continue seeing more upside in the second half.

I think we have the potential for a growth recovery. We have the potential for consumer spending recovery. We have the potential for an earnings recovery, basically, in the second half of this year, in the first half of 2024. And then we also have the Fed that’s going to probably pivot on monetary policy soon. And that should be another catalyst for more upside in high quality stocks.

RS: I was going to ask how you define a high quality stock, but considering you just brought up the Fed, maybe I’ll pick at that first. What are your thoughts on the upcoming Fed meeting?

VD: Okay. Yeah, I really want to answer the question on the high quality stocks.

RS: I’ll switch it around. You take the lead.

VD: Okay, no problem. So, high quality stocks. So, basically, when I refer to a high quality company, it’s going to be a company with significant growth potential. It’s going to be a company that is a market-leading company in its segment.

It has to be a company that has – that already either has significant profits or has substantial profitability potential. So, this is basically – these are some of the pillars that I look for. Market leader, preferably a monopolistic style company, preferably a company that is maybe operating in sort of a blue ocean atmosphere, something like a Palantir.

For a monopolistic style company, for example, even like Facebook or Meta (META) as it’s called now. So, Google (GOOGL) is another example. Amazon (AMZN), I mean, it’s a pretty extensive list of companies that are high quality companies that really got under – – they got sold-off to extremely low levels in the tech sell-off. And, basically, a lot of these stocks still have substantial growth potential, and they have the strong probability to continue to gain market share like, Tesla is another company that I’m very keen on.

So, yes, that’s basically the recipe for a high quality company. It might be something that that’s going to do really well in the future. And we can kind of, or I can kind of see the potential on that. I can almost touch it. And we know that in the future, it’s going to perform really well. There’s a high probability that the company is going to perform really well, going to outperform the market and its competitors.

RS: I’m going to interrupt you again before you get to the Fed with just a quick follow-up, just because we’ve had this bull bear debate about Tesla on the show, and you’re a long time analyst covering the stock. What would you say in a word is your, not in a word, but in a few lines, what’s your thesis on Tesla?

VD: My thesis on Tesla?

RS: Like, why are you bullish?

VD: Yes. That’s an interesting question. In one word, I would say that I’m a believer in Tesla, and I have been a believer in Tesla for 10 years now. In 2013, that’s when I started, I mean, that’s when I first started investing in the stock. I mean, if we adjust that for – if we adjust – if we split adjusted it, I mean it’s something like $20 to $30 range. So, it’s appreciated about tenfold since the time when I started investing in it.

My first article on Tesla for Seeking Alpha was in 2017, and interestingly enough, it was called – I think it was called, “Will Tesla become a trillion dollar company?” But the thesis of the article was that it would become a trillion dollar company within the next 5 years to 10 years, I said, and this was back in 2017. That was my first Tesla article. And it became a trillion dollar company much faster than even I anticipated.

So, yes. I’m a long-term bull. I’m a long-term believer in the company. I’m a long-term believer in the company’s CEO. So – and I’ve never kind of waivered away from that position. I’ve always been bullish on it, and that’s because I’ve always seen and felt the potential in the company. I recognize that the EV segment was extremely small when Tesla first got involved, and I saw the enormous potential in the EV segment.

And then I also saw the company’s unique approach to producing vehicles, and not implementing traditional advertising and just doing things differently much more efficiently than the traditional automakers. And it was apparent to me in the initial stages that the company in the initial stages of their ramp up processed for the Model 3, that the company just needed time to get everything in order, and then it would become extremely profitable. And that remain my thesis kind of throughout my whole investment history with Tesla.

Now, we’re seeing the company. It’s going to sell about around 2 million vehicles this year, which is a pretty significant number considering that it would – that it wasn’t selling anything 10 years ago. So, it’s quite remarkable. The potential that Tesla has and the ability to just to do amazing things, and it’s illustrated that it can do that. And it’s got exciting products like the Tesla Semi, that’s going to contribute about 13 billion to its annual sales soon or should. The Cybertruck that’s coming out soon, that’s also very exciting, and that should contribute another maybe $8 billion to $10 billion in revenues in a couple or a few years.

So, we’re seeing this just a continued tenacity for growing revenues at Tesla that I’ve never seen with any company ever. I think Tesla may be the fastest company – the quickest company ever to get to a $100 billion. I haven’t looked this stat up, but it’s just in my mind that it just makes sense that Tesla is maybe the first company to reach a $100 billion in sales in such a short period as it has.

So, that’s quite amazing and then we have the catalysts, the long-term catalysts like the driverless taxi segment. Some are predicting it’s going to be worth, like, just multi-trillions of dollars in 10 years in Tesla should have a good market share of that. Robotics, AI, people, they don’t look at Tesla as an AI company, but Cathie Wood has said this that, Tesla is the biggest AI play out there. And I believe this to be true.

Tesla is an amazing AI company. They’ve demonstrated this with their technology, their self-driving technology, and all of their, just all of their technologies that they incorporate with their vehicles and how it works so seamlessly with their software and just how everything seems to connect really well with Tesla, and it’s just not something that we see with other automakers or traditional automakers or other startup automakers.

I own Lucid also, but – some shares in Lucid (LCID), but I’ll tell you, it’s no Tesla. So, Tesla is a very unique company, and it should have quite a bit of growth long-term.

RS: And are you, first of all, thank you for sharing that, that was a really nice take. Are you dissuaded at all by them opening up their chargers or what’s happening with, I mean, I know that…

VD: I think that’s great. I think that’s just a natural evolution of the industry. And since Tesla is such a clear leader and such a clear – it has such a huge lead over its competitors in the pure EV segment that it’s only natural for them to have this supercharging network that they can connect other automakers too and kind of help them elevate their stance in the EV world also.

So, it’s kind of like, giving back to the community, and Tesla does this to, like, to the broader auto community and basically to the world because it makes the world a better place. It makes it a cleaner place. It makes less ICE. It’s less ICE vehicles, it’s better for the planet. And we’re seeing that trend growing, and now Tesla is even basically making this trend even stronger by not strengthening the trend by opening the – its supercharger network to the world, basically.

RS: It’s raising up the sector which behooves Tesla and then also Tesla has other really strong irons in the fire at this point that it can rely on in terms moving forward.

VD: Exactly. Yes. Absolutely.

RS: All right. Lay on us, what you think about the Fed? What you think is going to be happening kind of maybe near-term and maybe post near-term?

VD: Okay. Yes. So, the Fed.

RS: We’re switching gears quickly. We’re switching gears quickly.

VD: Yes, and that’s fine. That’s what we should be doing.

RS: I agree.

VD: I don’t – to be honest with you, I don’t see that much going on. I mean, we know that it’s going to be at a 25 basis point increase in 9 days next Wednesday. That’s about the probabilities of that are, like, 96% I’m looking now. That’s according to the Chicago Mercantile Exchange Group. So, there’s a very high probability that we’re going to see a 25% basis point increase. That’s already priced into the market in my view. That should not be a surprise to anyone. And another 25 basis point move. Here, it’s not really going to make a dramatic difference at all, I think.

So, what I’m looking for though is the statement, and I want us – we saw the inflation numbers come down. The CPI reading was actually very, very favorable, the last one. It was well below the estimate, and that should open up the door to a bit of an easier monetary stance from the Fed, I think, especially down the line.

They can probably hint to some kind of a stopping of the rate increase cycle, and perhaps we could start seeing the light at the end of the tunnel soon where the Fed is going to begin probably decreasing rates maybe early next year or maybe, I think, by mid next year. I’m pretty sure we’re going to see lower interest rates than now. And we can kind of confirm this probability by looking at the CME Group’s FedWatch Tool again, and we do see that we will probably see lower interest rates in – next year in 2024.

So, that’s positive for stocks, and that should be positive for risk assets in general. The big question is, will we see some kind of a more significant downturn in the market before the Fed kind of solidifies its position on an easier monetary stance? And I think we need to wait and see a little bit because we have seen a significant run up in stocks, but that doesn’t mean that we’re going to see a major sell-off.

We may just see another pullback in a little bit like we saw a nice little pullback recently of about 5% in the Nasdaq and that brought some high quality stocks down by 15%, 20%. So, we had some nice buying opportunities there. And that may be the theme from here if the Fed kind of levels out here. We may just see, like, a bit of a sideways to a slightly upward market in the next maybe several months, but we should see some buying opportunities arise in this time frame.

RS: How does this affect this thought process towards higher interest rates at some point in 2024 and a really bleak picture currently, and for the past period of time, let’s say at least 12 months, probably longer. Macro, speaking macro-wise, how are companies navigating this when it comes to earnings and forward guidance? And how are they projecting the future of their companies in terms of looking at the macro picture?

VD: So, I think it’s kind of company specific in many cases. But overall, we’ve seen the significant turn down. We’ve seen the earnings declines. We’ve seen the slowdown in ad spending and things of that nature. So, we’ve seen the big stock declines. So, I think a lot of the – much of the worst is probably behind us now, and companies, I think most companies recognize this. And I also think that we need to look at the overall inflation image and most companies also obviously look at these factors as well, and inflation has been – has come down significantly.

So from about 9% to around 4% in the CPI over the last year. So, the Fed has done a fantastic job in moderating and inflation much better than I had anticipated. And I think they’ve done a fantastic job, and that’s primarily the reason why we didn’t see, I guess, more of a significant bear market.

The question is, will we have – will we continue to see the Fed doing a fantastic job? Will we see the soft landing? And can we avoid a significant slowdown? Because we know that we’ve been in a slowdown, it can continue. But the question at the end of the day remains how deep can it get, how deep can the slowdown get, how deep can the recession get.

So, that’s something that we don’t know 100%, exactly how deep it will get, but most signs, they point to that it’s not that bad. It’s getting better. It’s improving. Inflation is moderating, has moderated. We’ll continue to improve and should get to a level where the Fed can begin implementing a more accommodative monetary stance. And that would be even more beneficial for Corporate America.

And I think that most companies are considering this scenario, and they’re seriously considering this, and they are planning for the future on how to capitalize on future opportunities, where to invest capital, what to invest in, how to best optimize their AI platforms, and things of that nature, basically, because, again, America has the best and most innovative companies in the world. And they’re extremely efficient, just remarkable, amazing.

Just some of these earnings results that are coming in now from the big banks. And we had Pepsi (PEP) report and UnitedHealth (UNH) report, just last week. And they were just amazing results. And I think this is a prelude to a great, a much better-than-expected earnings season that we should have now. And I think that just goes to show how innovative and how efficient American companies can be at the end of the day. And that should really serve many companies well in the future.

RS: Do you feel that there’s talk of the inflation cooling for not stable reasons, let’s say, or not reasons that we can bank on and continue to rely on. And to your point that a recession could still be lurking even though you don’t, it doesn’t sound like you foresee that as a strong possibility. The possibility remains. What are you looking at as signs that might happen in terms of the economy or from the Fed that you’re like, uh-oh, now I’m starting to get a little bit more nervous?

And in terms of your point about that it can be stock specific, or maybe even sector specific in terms of planning for these macro factors, how much of these strong earnings that are coming in are stock specific and how much are reflection of maybe the macro picture didn’t get as bad as we thought it was going to? It’s a lot.

VD: Okay. So, I’ll kind of start from what I can remember.

RS: Peel it back for us, Victor. Peel it back. I threw a lot at you.

VD: Yes. So, as far as the company earnings, yes, I think that there is quite a bit of relief in regards to the economic downturn not being as deep or as prolonged as many had forecasted or envisioned, so I think there’s relief on that front and we see that through the better-than-expected earnings.

And we see the rebound in earnings in many companies just some examples like NVIDIA, they just – they gave the most amazing guidance I ever saw. It was like, instead of 7 billion, it was 11 billion for Q2 guidance, and that’s just remarkable. And I’m using them as an example, but other companies also reported better-than-expected guidance, and that illustrates that really the downturn was not as significant as some had feared. So, that’s a good thing, and we should – we’d like to see a continuation of that trend and then improvement back to growth, of course.

Now, as far as the recession, I mean that’s a good question. And I’m always concerned about a possible slowdown and a more significant slowdown, but we have to put things in perspective in the regard that it’s a very recession. It’s a very marquee term, and now especially now that there’s so much, I guess, government involvement in the engineering of the numbers, the GDP numbers, that really, traditionally, I guess, speaking, we would have already been in a recession, and we would have already, kind of, we’d be on the cost, but probably getting out of recession around now unless we were looking at a double dip scenario.

So, due to increased government spending incidentally or not, we did not – we, I guess, avoided a textbook recession, but in reality, we saw an earnings recession. So we basically already went through a recession or we are in a shallow session now, and that’s fine because it’s a normal economic process. There’s no problem there. Just as long as we don’t have systemic damage or extreme panic, like, we saw in some instances, like, after the financial crisis or during end of 2008. So, we don’t have – we don’t seem to have any anything that signals clear and present danger as we saw back in those days. So, that’s a really good thing.

Now, as far as looking for troubling signs, the main thing here I believe is the labor market because that’s sometimes is like the last domino to fall. And if it falls hard, it could have a significant effect on consumer spending in the overall economy. So, that’s something that’s probably the most important indicator now, and it’s been coming in better-than-expected in recent months and that’s good. But that’s the one that we need to watch for any significant changes because if we start seeing negative non-farm payrolls numbers, that’s going to be very negative for the stock market.

So, we want to avoid the labor market dipping into negative territory. That’s number one. And then, of course, inflation is very important. And when we see a very good trend in the right direction, and we want to continue seeing that. But we don’t want to see – we certainly don’t want to see anything resembling deflation because that would be extremely negative for risk assets.

So, we definitely want to avoid that. And preferably, we can get down close to the 2% range. And if we don’t get to the 2% range, that’s fine. We can – I believe the Fed will become accustomed to higher inflation maybe in the 3 – maybe around 3%, possibly a little bit higher, maybe 3.5%. And perhaps that could be considered a relatively normal rate of inflation in the future.

And this may be a conflicting – this may be, not a conflicting view, but possibly a contrarian view that some people may oppose, but I can say that the Fed and the government, they have different ways of measuring inflation, and there’s always room to maybe tweak the numbers a little bit. And it’s also possible that the economy could function relatively well at a slightly higher normal rate of inflation. It doesn’t have to be 2% in my view. I think that’s too much of an outdated approach.

I think that sticking to a 2% target rate at all times may not be the best policy. I think that it needs to be more of a floating rate. And in some instances, I think it’s fine to have a 3%, maybe even slightly higher inflation. And 2024 maybe, 2025 maybe, the years that the Fed may be changes their stance a little bit to possibly a bit of a floating rate or maybe something like that, that’s what I think.

RS: Talking about tech for a second, you mentioned NVIDIA’s outstanding guidance, and we’ve seen a lot of outstanding performance from NVIDIA and some other tech names. And there’s been some complaints to that regard in terms of the index construction in the markets. Do you have an opinion or thoughts about that?

VD: I could see how that could raise some controversy, and that’s actually the word that I was looking for, controversial view on inflation. Yes. I could see how that could raise some controversy, the huge weight of the mega cap names.

I think, like the eight biggest tech companies account for something like 40% of the Nasdaq 100 or close, 30% to 40% and probably about around 25% to 30% of the S&P 500, which is pretty massive. So, obviously the big moves in these mega cap tech names will influence the major averages significantly, but I can’t see that that I have a major problem.

I don’t have a major problem with that because tech is such an innovative and such a forward moving sector, and it’s in my view, it’s so much more important than many of the other segments. And technology, kind of, I don’t want to say that it rules the world, but it kind of enables all the other parts of the economy and sectors too to function properly. So, technology is certainly the most important segment by far. So, I don’t think it’s a big deal that the big technology companies account for the significant weight in the major indexes, I think that’s normal.

RS: And so, how are you thinking about the tech sector? How are you thinking about AI, and talk of hype and what companies are you, I guess, focused on? And what would you encourage investors to focus on and to be aware of in that sector?

VD: So, definitely, we’ve seen some hype in the AI segment. But I think we’re very early in the AI revolution. So, we’re maybe in, like, maybe in, like, the second inning or something. So, we still have a long way to go, and it’s going to be a huge market, a massive market. And I think many of the high quality companies that are excelling in AI now and have the best AI programs, AI platforms, have the most AI potential, and should reap the benefits as we move on and many of these companies should do extremely well in the future.

And just several of my favorites that I have in my portfolio, include Palantir, Tesla, AMD, of course, Google and Amazon have some AI potential. Also, I don’t own it now, but I like the potential that Meta has, Facebook Meta. I think these companies are very well-positioned to capitalize in the future. Also, Baidu (BIDU), a Chinese company that I’m keen on has, also has a lot of AI potential.

And there are a lot of companies that have – that are promising AI programs, of course, like NVIDIA has an excellent future in AI, and it should – it could propel them to be even a lot more profitable in the future. So that’s what we’re looking at here.

Some of the companies that really do a lot of the heavy lifting, like NVIDIA and AMD, and other chip stocks that are – chip companies that are involved in AI, these are the ones that are going to be kind of putting in a lot of the leg work with their processors. So, these are the companies that should do really well in the future because AI, it looks extremely promising. Something that’s going to generate just billions and billions and then trillions of revenues and profits in the future.

RS: Do you feel like there are obvious companies that are getting swept up in the froth and the hype that you would be, like, absolutely no way would I have that in my portfolio, or a type of company maybe?

VD: I try to stay away from such companies, so I don’t do a lot of research into them. But we’ve certainly seen – we’ve seen some froth in high quality companies with the introduction of, not the introduction, but with the, I guess, the renewed interest in AI. So, a prime example would probably be NVIDIA as we saw it skyrocket from like, $300 to more than $400 a share. So, it’s got a – it has a market cap of well over a trillion dollars and it trades at like a 30, I think it’s, like, 35x sales or something.

So, I mean, it’s very expensive. There’s no way around it. NVIDIA is very expensive. If you’re valuing it from a more traditional standpoint on a price-to-sales or a price-to-earnings ratio. Other companies like, even like AMD looks – may look expensive here. Palantir’s, it’s also not cheap anymore. It was cheap when it was $6 or $7. Now, that it’s 16, 15 or 16, it’s not – I can’t say that it’s cheap.

Is it fairly priced? It’s hard to say. Is it expensive? It looks expensive by traditional metrics. But at the end of the day, we’re not – these companies, they’re not valued as a traditional company would be valued on this year’s earnings or trailing earnings.

We’re trying to value these companies relative to their revenue growth and profitability potential in the future, like 2025 and then we try to look out further because that’s really what matters. That’s what counts. It doesn’t matter what the company earned last year. Well, it matters, but not that much what it are, especially if we talk about some kind of futuristic – a futuristic, I guess, market, you can say. AI is a futuristic market because in the future, it’s going to be worth a lot more than it’s worth now.

So, basically, we want to project their growth and earnings into the future. And once we do that, we can tell that these companies may not be as expensive as they seem. So, again, we want to own these long-term, the high quality AI-oriented companies that are market-leading companies now because they will probably continue to lead in their segments and incorporating that with AI, they could even increase their lead over their competitors and capitalize even more in the future, gain more market share, become more profitable, all thanks to AI.

And there are a lot of excellent companies that are doing great things now, and they should continue to do amazing things. And they’re going to be worth more and more in the future in my view because, again, they’re going to be continued to be valued relative to their future growth and profitability potential. Like, in 2025, people are going to be looking out to 2028 or 2030. So, we have to keep that in mind when we’re investing in anything. We don’t want to invest in anything that’s going to be stale and boring in future.

In contrast, we want to invest in something that’s going to be growing. It’s going to be exciting. It’s going to be profitable. It’s going to – the whole world is going to be watching it or using it. So, we want to invest in companies like Tesla, Netflix (NFLX), Google, Meta, and NVIDIA, AMD.

We just don’t want to buy when they’re too expensive. We want to own them. We want to buy them at good price levels, and we want to own them in the long-term, and we also want to find new companies that are going to do really well in this AI arena and in other segments, of course, and we want to own these companies, too. And that’s how we make – that’s how we do best.

RS: When news comes out like China putting restrictions on some of the chip companies, does that put you back at the drawing board in terms of working out guidance for the coming years? Or is that stuff that you figured in because as you said, it’s a burgeoning industry that we’re watching grow?

VD: It’s something that’s a little concerning. It’s something that we need to keep an eye on. It’s something that could impact future sales and growth and profitability. But on the other side of the equation, we also need to consider that there’s plenty of growth outside regardless of China. There’s plenty of growth. Another factor to consider is that any Chinese imposed sanctions could be transitory, temporary, short lived, whatever.

So, there’s no guarantee that they’re going to be long lasting. Another factor we need to consider is that China has its own companies that have significant AI potential and we can invest in those, like in Baidu, whether we do that in ADRs on the New York Stock Exchange or whether we do that or the Nasdaq or whether we do that by owning these stocks on the Hong Kong Stock Exchange, it doesn’t matter, but we can get exposure to the best in Japan as well.

And at the end of the day, it’s about having the best companies in your portfolio that are going to – that are – their stock price is going to appreciate the most, and I don’t think it really matters that much if China imposes sanctions or not. It’s a transitory factor that it doesn’t really impact my investment strategy too much, but I do consider it.

RS: You also mentioned Netflix just now, and I know that they’re reporting earnings this week and maybe your thoughts on streaming and content and what is – speaking of AI, I think that’s a great bridge to what’s happening in the entertainment industry?

VD: Absolutely. So, that’s an excellent question about Netflix. And I love the company. I’ve been a Netflix user since 2007. So, a very long time, even before they had a streaming platform because I remember just the DVDs.

RS: DVDs in the mail.

VD: Yes, DVDs in the mail. So, I mean, that was innovative, and then that was really cool. And I also remember when Blockbuster, when they were in trouble and Blockbuster passed on buying them for, like, something very, very silly, and then Blockbuster went bankrupt. So, I remember that whole saga.

And then I started owning Netflix shares, I think, back in maybe 2011, I started investing in Netflix. And that’s been one of my best investments ever because the shares have done extremely well, of course. And Netflix, it became – when it started doing streaming and it started doing it well better than anyone else, and then it added its own content, it became – it just became a different kind of company that no one has ever seen before.

And many companies have tried to emulate Netflix’s success, and I guess the most, the brightest example would be Disney. And I always maintain the position that Disney would not achieve any kind of, like, nothing close to Netflix’s success in stream.

I’ve always maintained that position, and I continue to maintain it, and I think that’s what we’re seeing now because Disney’s (DIS) stock has been depressed. And we see that they’re just not, it’s just – the way I explained it a long time ago when people were asking me about Disney and Netflix is that, Netflix doesn’t build theme parks for a reason, it’s not their core business.

They have the best, the stickiest platform in the world, and then we see that the users love it the most. And Disney, it may have some decent content. I’m not a fan of the content. So – but it’s not all about the content. It’s about the platform, it’s about the user experience, it’s about the technology, it’s about the AI. And if we start talking about AI, then we need to say that in streaming, Netflix continues to be the leader. It’s – and I believe it’s going to continue leading. And AI will definitely help their business as well.

And we already see Netflix having amazing success with advertising because we know that Netflix didn’t advertise for a very long time, and it did very well. But to increase revenues and profits, the company is doing extremely well with advertising. That trend should continue. And, of course, the AI will help its platform be more, probably be more user friendly, and I’m sure it’s going to have more constructive features in the future. And the content, of course, content, Netflix’s content is excellent. And probably the most important thing, it’s their cash flow.

It’s their solid position as a company that can continuously make money and have almost no debt, as opposed to the traditional companies like another example would be HBO that – it’s trying and trying to become a reputable streaming platform, and it’s just having so much difficulty and the disaster with AT&T (T), of course, didn’t help. But we now see that the Netflix works with HBO a lot, Warner Brothers a lot.

So, basically, HBO Warner Brothers, they work for Netflix. And they produce content, they say with Netflix, but, really, they work for Netflix. And that just shows you that Netflix is the best company in the space, the market leader, and it should continue to outperform.

RS: Yes. They seem to be making a lot of the right decisions when companies are so clearly making such obvious wrong decisions. It sometimes feels befuddling. Is there anything that you foresee or could imagine that would come along in that marketplace to throw Netflix off its game like, do you see Blockbuster getting back into the arena? Just kidding.

VD: That’s a good question. Honestly, no, I don’t. I think Netflix’s biggest threat is maybe Netflix. So, what we need to see is the continuation of quality content. We need to possibly even improve the content because sometimes it’s excellent, sometimes it can be better. So, we need to continue seeing excellent content, innovative content.

We need to see their global strategy continue to capture market share outside the U.S. We certainly need to see the company continue to grow its subscribers, of course. And continue increasing its revenues and improving its profitability. I think it can be done. It’s obviously going to be challenging to sustain the kind of growth we saw in prior years.

So, we’re probably looking at slight lower revenue growth for Netflix in the future, maybe around 10% or 12% annually in the next maybe 3 to 5 years. But with its ad program now, Netflix should increase profitability more than expected in the coming years.

So that could be a positive catalyst to kind of push the stock higher. I think the stock, it’s a little overpriced here to be honest. I think maybe it’s gone maybe a little bit ahead of itself because I was recommending it back around the lows at, like, when it was around 170. So, now it’s well over 400.

So, I’m thinking if we have a pullback to around the $350, $380 range, that would be an excellent buying area for Netflix. I don’t – I’m not sure we’re going to see it after the earnings because the earnings actually could beat estimates, and we may see another bump in the stock, but maybe in the near-term, we could see a bit of a consolidation or a pullback phase in Netflix and then kind of maybe look to re-enter the stock possibly a little lower if we get the opportunity, but I also think it’s fine to just to be long in stock here for the long-term if you choose to.

RS: I’d like to winddown with financial stocks and maybe how they’re looking out of earnings and what you’re seeing out of the financial sector. Yes. As we come to a close on this seriously fantastic conversation, thanks for coming out.

VD: Yes. I agree. It’s been very nice. So financials, I like the financials here. I think, oh, so some financials here. I think that – I think, well, we’re kind of seeing the numbers as they come in, and they’re significantly better-than-expected. If we look, for instance, if we look at who’s reported so far, JPMorgan’s (JPM) results were excellent. And, also, Citigroup (C) reported, and it was a better-than-expected quarter. And, also, I believe Wells Fargo (WFC) also reported, and they also beat on the top and bottom line.

So that’s great. And that’s basically what we’re looking for from other major financials. I mean, JPMorgan beats – beat revenues by more than $2 billion. So, I mean, that’s, like, a 5% beat on revenues. That’s very impressive. That’s very impressive, and they beat by about $0.40 by about 10% on the EPS side, which is also phenomenal. And Wells Fargo had a beat on top – on both top and bottom line.

Citi beat on top and bottom lines, not by much, but it was still a beat. And – so in the coming days, we will see more financials reporting. And I think we should probably see the trend of better-than-expected earnings continuing in financials and in other companies and most other companies as well because in my experience, if the financial earnings are good, then the rest of earnings season is also typically better-than-expected. As financials go, usually, the rest of the market follows.

So, we’re going to see what this earnings season has in-store for us, but I think it should be better-than-expected, and I’m especially looking forward to the big tech names. We have Tesla coming up this week and Netflix, but the – all the other big tech companies, I believe, are coming in the weeks after this one, and we should have – we should see Apple (AAPL), Microsoft (MSFT), Google, Amazon, all reporting relatively shortly, and I expect to see big earnings and upside surprises for most of the big tech companies, which should be very good for the Nasdaq and the overall market in general.

RS: Any – again, thank you so much for this, Victor. I hope that this is the first truly of many, because I think this was such a well-articulated and well-thought-out conversation, mostly on your part. So, I really appreciate you joining us. And any words that you would leave with investors or potential subscribers or existing subscribers and how we should all be looking at the markets or anything else you’d like to share?

VD: Yes. So, going forward, I guess, the most important thing that – the most important takeaway is that, again, high quality companies and investing for the long-term. If we combine these two factors, we are almost guaranteed to beat the market and we are almost guaranteed to achieve optimal gains, optimal returns. So, again, looking for high quality companies for the long-term with excellent buy-in ranges. So, we want to – we obviously want to buy on pullbacks, on corrections, the best of the best, and that will enable us to have excellent portfolio returns. So, join us at the financial profit and achieve the best returns possible.

RS: All right. Join the prophecy.

VD: I guess, we can kind of join the prophecy. There you go.

RS: What were you going to say? What was your last line going to be? Did I just lose you? That’s funny. Good timing. I lost you for a second. I guess that’s…

VD: Yes. Okay.

RS: That’s funny. Good timing. Well, I’m just going to close it out with a thank you before I hit stop recording. Thank you very much for coming on. Really appreciate it, Victor.

VD: Hey, it was great. Thanks for taking the time. And anytime you want to do another one, let me know, and we can discuss markets or whatever. I had a pleasure. Thank you.

RS: I’m going to keep you to it. I appreciate it, Victor. Thank you.

VD: Okay.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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