063 - How Q2's Earnings Results Tell Us Where To Invest And What To Avoid

We’re back with Quarter 2’s overall earnings results and what that means for your investment strategy. 

No one wants to comb through the 68 page report, but if you want your portfolio positioned for profit, you gotta put in the time... Or just tune in because Tim’s done the work for you. 

He’s boiled things down to the important pieces, and let me tell you there are some gems in the data. 

Pay attention because not all areas of each sector are looking good. One of which is metals.  

Don’t be one of the people caught holding the bag. Instead get into companies primed to pop off ahead of the crowd. 

The data verifies what Tim's been saying for months now with Utilities, Energy and Real Estate (REITs) being where you should be investing. 

These sectors higher debt will be relieved when the interest rates decrease because they'll have better margins, more revenue, and higher earnings.  

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**DISCLAIMER**
Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.

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Transcript

Welcome to Roaming Returns, a podcast about generating a passive income through investing so that you don't have to wait till retirement to live your passions. We're back with quarter two's overall earnings results and what that means for your investment strategy. No one wants to comb through the 68 page report, but if you want your portfolio positioned for profit, you got to put in the time or just tune in because Tim's done the work for you.
He's boiled things down to the important pieces and let me tell you, there are some gems in the data. Pay attention because not all areas of each sector are looking good. One of which is metals.
Don't be one of the people caught holding that bag. Instead, get into companies primed to pop off ahead of the crowd. What's up people and other species, manly dogs and cats, hopefully cats.
So today's episode is going to be probably pretty dry, but it's very, very good to understand what the heck is happening during earnings, earning season, because it'll give you an idea of the health of companies, like the health of the market, the health of the economics. So we'll try not to make it super, super boring. Yeah, but you know, Tim and his monotone.
Yeah. So as of I pulled this report off the interweb, I think it was as of my birthday, August 9th, 91% of all the S&P companies have reported. So we're almost done with quarter two, but we actually can derive some information from all these reports.
The first is that the growth rate for the S&P as a whole was 10.8% for quarter two, making this a prolonged period. It's like 15 consecutive quarters of revenue growth for the index as a whole. That's the tide with the longest Mark since 2016 to 2020.
And that goes all the way back to after the, uh, whatever the hell would they call that the great crisis or financial crisis of what? 2008 when all hell broke loose in 2008. Oh yeah. I think they just called it 2008 crisis.
Okay. So like what that's saying is that the S&P is basically doing some pretty, pretty dramatic earnings growth. If you're not familiar with earnings growth is the companies themselves are reporting their EPS is growing.
The earnings per share is growing. That means that could be more revenue. That could be fewer shares.
That could be more money or a higher share price. Also like it's a, it's a very good, um, I could also be cutting costs, right? You could, there's multiple, I think for a lot of the S&P companies, it's probably a lot of them do the share buybacks. So they actually have less shares on the market.
So their price is actually going to be elevated. Plus the market as a whole, when we'll get to it in a minute is overvalued. So that makes sense that the earnings growth rate is at 10.8 for the last quarter.
And that completely contradicts what everybody's been panicking about in August. Well, they've, they've, they've since came to their senses. Uh, basically the August thing was about a jobs report and then people were kind of nervous.
And then that, uh, Japanese, uh, carry trade crisis happened and people like were jumping out billions and shit. So, but it's so interesting how people freaking see one or two things in the news and they take it in isolation and they act completely erratically. And this is why we harp all the time about getting your emotions in check.
Do not do things emotionally. Look at the bigger picture, get a better idea of what's actually happening. Don't wait for the experts to interpret things because they're always going to go the round of doom and gloom and then people are going to take that and run with it.
And then crazy things are going to like come about. We keep saying, we've been saying the markets don't look as bad as everybody says they don't. But again, they're, they are, they're, they're, they're slowing though, right? There's ways to around, um, data.
So like, it's not all like roses either. Yeah. I kind of would frame it as a market right now.
Yeah. But it's not like a recession recession. Not yet.
Some, um, some companies or some sectors maybe, but okay. So 78% of the S and P companies have reported a EPS beat. What that means is the experts will say, um, we've looked at your financials.
We've looked at all the data. If your company, we think that your earnings per share is going to be X 78% of the companies have beaten what the experts predicted. Um, and 17% have actually not beaten, but the 78% beat that's, that's really good.
So that is in line with the one year average. That's above the five year average and the 10 year average. So they, they, this good, they go back and compare this shit for some reason.
I don't know. I guess there's nothing better to do on a Thursday. They just like to make up data points in terms of revenue.
59% of the companies had a revenue beat and 40 had a revenue non beat loss. So that's a six. Uh, so that was a below the one year average, below the five year average and below the 10 year average.
So what that's saying is the earnings per share could possibly be, um, convoluted to make it look good, but the actual shit we're interested in, the meat and potatoes, the revenue, like we are below the one, five and 10 year average. Like I'm more interested in revenue. I could give a shit about earnings per share because like I'm saying, there are so many accounting, so many accounting practices that they can use to make their earnings per share look better.
But revenue is revenue. Like it's, Oh, there's a window open. Hold on.
It sounds like they may be blowing some grass off the sidewalk. They woke us up at like seven o'clock this morning mowing the grass. Super awesome to them.
Okay. Okay. Then if you're not familiar with how this works, like a company will report an earnings and then like they, sometimes we'll go back and look at it and say, Ooh, we forgot something.
So they actually will do revisions. Um, nine sectors are reporting higher earnings today than June 30th due to upward revisions. So that is interesting to know that they can't do their accounting right in the first place, or at least within their time window, which to be honest, if it was me, I probably would be like pushing the envelope on timeframe.
But at the same time, I wouldn't have that job for a company. That's my only freaking task. But what the important part of this, that what this is when they, when they re um, revise their EPS, um, data, they actually will start to project out for quarter three, which is interesting.
47, um, S and P companies have issued negative EPS guidance and 39 have issued positive EPS guidance, meaning that the experts have a, what's that called an anchor point. They're going to say that this company is going to make $2 per share. Well, the company is coming back after their quarter two earnings saying, no, we're not going to be making $2 a share in quarter three.
So that is the fact that there's more actually issuing negative EPS might point to economic downturn a little bit, or that there's the too much euphoria with the experts and their projections. I don't know. I don't, I don't know yet which one it is.
If you're a company and you want good news, you can under anticipate what you're going to actually pull in. And then when the actual real numbers come in, if you overshoot it, we were just talking in the last bullet point about how beating your earnings is good news and usually a sign of euphoria. So again, if you say you're, it's going to be negative or, or downward, that's a way to like manipulate people's like thing.
And we talked about that anchoring bias where your expectation is one thing. And if something's conflicts with that, it can either be good news or bad news, depending on which side it was on. Remember that time I said that the market as a whole is overvalued.
Well, the current forward looking 12 month price to earnings ratio for the S and P 500 is 20.2. That is above the five year, which is 19.4. And it is well above the 10 year, which is a 17.9. So the market is overvalued and almost to the point where maybe it's vastly overvalued, depending on how you view things. Historically, like historically, it's really overvalued 10 years. The 10 year average is generally a, um, a nice, can you have more data? That's a better number sometimes.
So that's something to keep your eye. Like that's why we, um, when I give out my top 10 of the week in the email and we have, um, I'll do other things on the podcast where we say this one's looking pretty good or this one's looking pretty good. Like I do the PE, um, analysis already.
And I use, um, the forward PE more, the more, uh, probably 98% of the time compared to the current PE. Cause I'm more interested in if I'm buying something, I want to know what the forward PE ratio is because that gives me a better understanding. So if you follow us, you already getting, um, you're getting information that is pretty good in reference to the PE ratios.
So kudos to you and me. More like kudos to you for actually giving them information that's more relevant. Okay.
Then we have an aggregate thing where earnings have exceeded the estimates by 3.5% without basically saying so. So say they say the earnings for the S and P is going to be on average a dollar per share. Well, it's a 3.5% higher, which sounds good until you actually look at the averages, which is, it's well below the five-year average of 8.6 and it's well below the 10 year average of 6.8. So that is another thing that we might actually be in an economic slowdown.
So it's good to know. It's good to, like I'm saying, like it's, this shit is boring as hell, but it's good to have the data because it can actually help you to set a plan for your investing for the next three, 12 or three, six or 12 months. Yeah.
Cause growth happens when people are super euphoric. Everybody's got a lot of money and they're spending and pumping it into everything. Well, this data now is saying that things are starting to slow down.
And what's so interesting is like Tim and I were just talking yesterday that the area that we're currently in, in like Mechanicsburg, the Navy Depot area, Harrisburg area of Pennsylvania, it does not reflect what the rest of the country. That was one thing that when I took the drive out to New Mexico, I'm we're from the central Pennsylvania where it like everybody has money and they're all spending money. The stores are all full.
People are buying new cars. Everybody's buying gas. Everybody's smoking cigarettes.
Everybody's buying booze. Like, like it's like fucking Mardi Gras in this area. Like there's so much money running around, but the further away from the Northeast I got, I could actually start to see like, okay, uh, it's aberration where I'm from is an aberration.
There's a lot of people out there struggling. Like there's people that are putting like five gallons of gas in cause that's what they, what all they really want to put in so they can get back and forth to work for a couple of days. People are buying much more generic as opposed to the name ran, which they should be doing to begin with.
We've already covered that at nauseam previously, but for, for a lot of people to be doing that is crazy. There's people that are actually skipping buying stuff. New car sales are just, they're new car lots are like practically giving away new cars.
The further away from the Northeast you get. So I'm starting, you can see the economic slowdown once you get out of your area. If you're in an area like I was just going to say, it's hard to judge what the heck's actually happening across the country.
If you're in an area that is not actually part of the norm. And I don't know if the Northeast as a whole is this way. Like I wouldn't be surprised that most of the snooty snooters live up, up in, and we're not even in like the ritzy ritzy region, but I think because of all the military bases around here, like there's a lot of like higher earners with kept wives who just have like nothing better to do than go shopping.
Yes. Now, as I, when it comes to earning surprise, what an earning surprise is, is when the experts say, Hey, um, X company, say for example, we'll say, uh, Chipotle is going to have earnings of $4 a share. And if it comes in the earnings are like $5 a share, they call that an earning surprise.
And that would at that, but if it was $4 and it was $5, that would actually be a 20, 20% earning surprise. Well, what they found out when analyzing the data for the current earning season is that when people have a positive earnings surprise, it's really not moving the needle. Like, um, we talked about it before.
Like one of the things I used to do years ago was I would literally just scour for companies that were going to have a positive earning surprise because generally you got like a five to 10% boost for holding the sock for like four days. That's not happening. Like it was a 0.5 to 0.8 is all that they were going up with the earning surprise because people will understand that, um, the earnings are going to be higher because there's more, everything costs more.
So companies should have more, um, earnings and higher revenue. So they're not being rewarded for that. But what they did find is that the companies that missed their earnings and they had a negative earnings surprise, they actually were decreasing off about 4%, which is almost double what the normal decrease was five years, like over the five year average.
Okay. So we're in like the negative. So if you, if you beat, you're not getting rewarded like you would previously say in like 2018, 2019, 2020, but if you miss, you're getting punished much more than you have in like the last five years.
Yeah, that makes sense. And again, there's that like aspect of pessimism, which again, usually precedes recessionary type periods or just lulls in general. So to me, that says like we are moving more into either a lull or possibly, I guess, depending what they do with everything else, whether we go into a recession or not.
Now you have to like, when you, when we're discussing this, it is like a, um, a snapshot of the S and P, which is the 500 biggest companies, um, in America and the market. Um, that's not, that does, this doesn't take into account like the small caps because the small caps are more volatile. I can't find any really good data on small caps.
You'd basically just have to do individual. If you have small caps in your portfolio, you have to look at what's going on with that. But this is just a snapshot of the, like the, the mainstream economy.
So basically this is the thing that has the most data and you can extrapolate to other sector or other markets, but there's probably going to be a little bit of differentiation. Cause at the sector level in quarter two, um, there's 11 sectors, 10 sectors actually had year over year growth in revenue. Um, and for it information technology was a 10.4 energy was at 8.1 and communication services was 7.5. Uh, the only sector that actually was had to decline in revenues was materials, which kind of makes sense.
People aren't willing to buy, I'm sorry, to build houses and to build like warehouses and, and to build stuff because there's no guarantee that they're actually going to recoup money from that. So they're kind of holding off until they figure out what's going on. I think that's kind of good cause I, they were building houses like crazy over here.
And then I see so many still for sale. I'm like, I don't see people buying, which contradicts like everything else we're seeing with saying buyers are everywhere. Well, I think it might be interest rate driven.
I mean, if you think about like from the, the, um, I'll get to that in a minute, I have like a profound point about all this. Um, analysts are projecting earnings growth of 5.4% and revenue growth of 4.9 for quarter three, which is pretty good. But then in quarter four, they're projecting earnings growth of 15.7 and revenue growth of 5.4 for the calendar year of 2024.
They are projecting growth of 10.2 for earnings and revenue growth of 5.1 for quarter one analysts. They're projecting a 14.5, um, earnings growth and a revenue growth of 5.8. And for quarter two, they're projecting 14% earnings growth and a revenue growth of 5.8. And for the calendar year of 2025 earnings, earnings growth of 15.2 and revenue growth of six. Okay.
Let's revisit that. Let's unpack that. That's a lot of shit.
I just said, yeah, for real. What that's saying is they're actually seeing the earnings growth bouncing around, but it's pretty much all in double digits. So they're, they're seeing that the inflationary, um, prices are still actually contributing to earnings growth and that the, because the companies are having more money roll in.
And you can see that with the revenue growth because the revenue growth is anywhere between six and 5.1. So they're still seeing a revenue growth of pretty, a pretty high revenue growth. We're not like, you have to remember the market is, um, afford forward looking type thing. And like, if you think, if you look at the S and P today, that is like a projection of at least one to three months in the future.
That's why, like when there's bad news, people like shit, they shit panic because all that could hamper their shit like one to three months down the line. So the sentiment is about a quarter ahead, but when the news comes out, it's actually a quarter behind, right? So there's that like two quarter gap. Well, like when the Fed news comes out, it's behind, but whenever the market, like the experts come out and they say, well, we're projecting like Chipotle to have like 12% growth.
That's like a 12 month, you know, 12 months for projection. This is saying is they're seeing a lot of revenue growth. Would that this important again, earnings, earnings growth, not really that important because there's ways to finagle that, but they're seeing a lot of revenue growth, but that is from the current pricing being so high and inflation has been stubbornly high for like a year.
So there's their data of what this says to me anyways, is I don't see inflation going down below 2% at any point in the next five quarters. So if you extrapolate that information out to like this whole, the whole craze right now is we need to have rate cuts. Why? I was going to say the data from everything you've just put in this does not actually signals.
We should actually have a rate increase. Rate increase would probably melt everything. Yeah.
Yeah. Hold for sure. So I think they're probably going to push out any cuts.
There may, like I said, I don't know if it was last week or the week before I, if it's, if there's a cut, it's going to be 0.25, maybe 0.5 by the end of the year, but it's not going to be what these people are clamoring about. They want like 1% before the end of the year and like 1.5 for the next 12 months. It's crazy to think that because the economy is not in that bad of shape where they need that.
It's, it's not good, but it's not bad. The only ammunition that the federal reserve has is to cut interest rates or to raise interest rates. But if they cut them, they're actually going to make inflation worse, right? Yes.
Yes. I think so. And if that's what people are complaining about, like that doesn't make any sense.
So the numbers are saying the opposite. The numbers are saying, stay the, like, if you're investing, stay the course, don't panic, but don't expect anything miraculous from the federal reserve. Yeah, for sure.
For sure. And I could see them possibly not raising again, just because they don't want to induce panic of a crazy, crazy recession. Cause people are like, there's like two camps, the people who are like super, super fear and spastic.
Cause I think the fear and greed index is like all the way over for right now. Yeah. People are very fearful, so I could see them keeping things status quo or maybe giving them like a euphoria boost by just like, I'm trying to, I spend probably an hour or two each day after I read things, trying to comprehend what the fuck people are actually looking for.
Would you rather have a healthy economy or would you rather have a high price stock? Because if you want the healthy economy, you kind of don't want the interest rates cut. If you want a high stock, you're basically disregarding the economy and your stock is going to come down at some point because they're going to be like, well, the economy shit. So like, I don't understand the whole, I want a high price stock at a, by any means necessary, which is the whole reason for a rate decrease.
Yeah. And I think it goes back to the fact that majority of the people that are in the market, what is it? 90 to 99% of them are instant gratification, which to me would say, yeah, they want the best for themselves this minute. Damn, whatever the heck happens to the stock in the future, if it goes freaking crash and burn, that'll be for their later whoever to deal with.
And that's not smart. Like I'd rather have a healthy market because now we're going to, we're going to get into some, some, some, um, to me that like the other stuff is just fluff. That's like a general, that was fluff.
It was just a general snapshot of like, generally like the 500 companies, like the economy. Um, we're going to go to the sector level at the sector level, a healthcare and real estate had the highest percentages of companies reporting earnings above estimates while the consumer discretionary and consumer staple sectors have the lowest percentage of companies reporting earnings above estimates. And that actually, so that kind of what we said that kind of goes contrary to what everybody that's a doomsayer saying, like they're saying, get into consumers, discretionary consumer staples, uh, utilities, things like that because they're the safe place to be.
But what we're seeing is people are in healthcare and real estate. That's why they're, they're actually having more. So this backs up your toting from the last several months to healthcare and real estate.
Heck yeah. And then, yeah, I don't, who would ever say getting in discretionary is a safe bet, especially when there's so much fear. If they're fearful of a recession, the best performing sectors are consumer discretionary consumer staples because that's what people need.
Discretionary. Well, it's like the cat, if you see the companies that fall into consumer discretionary, people need it. So like, okay.
Cause I interpret discretionary as like, I have extra money to spend. Or I think it's verbal spending too. But like, uh, one of the, I think, I think one of the big ones in consumer discretionary is automobile stuff.
And there's different, like there's different sectors or not, not sectors, but different subsets in the discretionary. Like there's a new V a new vehicle part of the consumer discretionary, which should be low, but then there's like automotive repair and garages and like oil and oil changes and stuff like that. So like there's different categories that make sense.
So it's important that they keep their car running so they can go to the job. They don't have money. Yeah.
The sector that had the highest, um, positive difference between actual earnings and estimated earnings was utility followed by healthcare and consumer discretionary. On the other hand, consumer communication services reported the largest negative difference between actual earnings and estimate earnings. That doesn't really matter.
That's basically just saying, okay, the experts say that utilities are going to perform poorly, but they've actually performed better than expected. That to me, it isn't a reflection of the utility sector. That's a reflection on the people covering utilities that they just kind of suck at their job because we, as you'll see further on down the line, utilities and communication services and healthcare are all pretty, pretty banging sectors to be in.
We'll get to that in a few minutes. Now, this, this next one here is somewhat actually well may be well more important than I just said that the sector level, the healthcare and it sectors have the highest percentage of companies reporting revenues above estimates while this consumer staples and utilities have the lowest percentage of companies reporting revenue. Okay.
Revenue. I mean, I'm sure I said this revenue more important than earnings. Agreed.
Um, having a, like a 78% of your, of your companies in the sector, the healthcare sector beating their revenue estimate. Very key. Having 75% of your companies in the it sector beating their revenue.
Again, consumer staples was at 43 and utilities was at 43. So what I derived from this is that people are spending money on their healthcare and they're spending money on it and not so much on consumer staples and utilities, but that makes sense because utilities, there are a quarter four quarter one type thing when it's cold out. I was just going to say, if this is back projected, springtime is like you at least up here when we have four seasons, you're not really running your stuff as hardcore unless you're like need to have it extremely different, which I could, I can't even imagine what their freaking summertime stuff's going to be, but stay safe, stay inside, live in air conditioning.
When I was out in New Mexico, though, when they had like a hit, like a mini heat wave, one of the things they did say was it's supposed to be really hot today to protect yourself, stay inside in the air conditioning. So like the, I guess the, the quote way to combat climate change is to stay in air conditioning, which is, that doesn't even make any sense. If you're burning fossil fuels, you're contributing to climate change is going to give out at some point.
And if you're not acclimated your body to being able to go out in the heat, you're kind of going to be fucked. Yeah, pretty much. But like we have, I really do think we are on the cusp of a global energy crisis if we're not already there.
So like preconditioning yourself to not be able to tolerate the massive differences in fluctuating temperatures, like you're setting yourself up for pain and suffering later. Oh, that's just like exactly what they're doing with the market right now. Shocker.
Okay. Now the, the net profit margin for the S and P is at 12.2% for quarter two. Uh, what that means is after everything's taken out, um, their profit margin between, between what they need to operate and what they currently have is 12.2%. I mean, I'm sure most people know what profit is, but the, um, the year, and that's above the one year and above the five year averages for that.
So that's, that's means they actually have more money than they need to operate, which kind of goes in line with everything else we're saying that they actually have more revenue as a whole and S&P. So is revenue kind of like their gross? Yes. Okay. So revenue is before any of their expenses are taken out.
And then their profit is after the expenses are taken out. So revenue doesn't necessarily mean jack squat if their expenses are ridiculous because you can still have negative. But like one of the, one of the areas that I actually look for is I like to see a company that has, um, increasing revenue.
I mean, I don't, I'm not disputing that. That means they're selling more product, which is good. But if they are taking on more debt, that doesn't necessarily translate to like a profitable, like cash reserves type deal.
I'm just explaining the difference. Okay. And the five sectors that actually had the highest, um, increases in their profit margins were financials, utilities, it, I only need three.
Okay. Well, the three best ones are those, um, the worst performing ones were real estate, consumer staples, consumer discretionary, but we kind of touched on that already. Um, real estate is tricky because you obviously, everybody knows real estate's like a quote, a good investment.
The problem with real estate in a high interest rate market is that it's going to, it's going to have, you're going to accrue more debt trying to fund everything that you're going to pay more in interest. You're going to eat your profit. So your profit margin should go down in a high interest market.
Just so like that one, just a caveat for the real estate, but the consumer staples and, um, consumers discretionary having less profit margin with higher, um, higher prices kind of like lead you to believe that the consumer's not spending as much in those two sectors, which they're not the other data pointed to that. Yeah. So that makes sense.
So we're going to do some sector, um, some sector earnings growth here real quick. The, uh, utility sector is reporting the highest year over year earnings growth of all 11 sectors at 20.4 inside the utility sector. There are five different, um, subcategories industries.
The best, uh, best one was, uh, under and renewable and electricity, uh, then electric and gas and multi utilities. But, uh, inside of the utility sector, water utilities is actually negative. So that should like, well, it's like, I know the shit is boring, but that's super huge because we've been pounding the table about utilities.
What this is telling you is that renewable energy seems to be banging out like lots of money, whereas water utilities are actually losing money. So that should, well, and that actually makes a lot of sense because if you travel to other places in the country or you pay attention to the news at all, which is actually something I don't, and yet I've still been aware of this whole thing. We are not, we're using more water or lose, not getting enough water back in our actual like reserves.
And that's why there's all this talk about trying to figure out how to actually like desalinate the ocean waters, the pump water, like across the country, I could see how that is going to require excessive investment, which is going to give them a lot like lower earnings type deal. Well, well, like the reason I actually include this in the podcast, and I'm probably going to compose an email with all this to send out to the people that don't listen to the podcast is because utilities is a really good sector to invest in based on everything we've mentioned up to now. But then you have to be in the right industry of the sector and water is not it.
Yeah, water is not it. It was going to be the electricity, which we've said before, because of the AI stuff. Now, like one of the best, the highest growth sectors is information technology, IT.
I think that's going to be for a long time. It had a really good, really good earnings growth at 18%, almost 19%. Four of the six industries in the sector, we're doing awesome.
Semiconductors and semiconductor equipments at 51% earnings growth. Technological, hardware, storage, and whatever the peripherals means. I don't know what peripherals mean.
So we'll just say tech storage, hardware and storage is at 15. Software is at nine. And IT services is at 6%.
The two industries in the tech sector that actually aren't doing very well is communications equipment, which is losing 17%, and electronic equipment, instruments, and components, which is losing 2%. What the heck is the difference between hardware and electronic equipment, instruments, and components? Hardware is like, I guess, the actual computer, whereas the electrical equipment is like stuff inside the computer. I don't know.
That's an interesting differentiate because in semiconductors, that's like, again, pieces of- That makes sense. If you actually know anything about the IT, NVIDIA is like everyone's poster child and NVIDIA is up a lot. Well, they make the chips, right? Yeah.
The semiconductor is up 51% in earnings. So that makes a lot of sense. But what this is saying is communications equipment for IT, I don't know what that is. Like, uh, sounds like phones and such phones, maybe. I don't know.
But like, there are a couple of sects, a couple, a couple of industries within the actual it that are struggling. So it's good to know if you're going to invest in it, say you're doing like a closed-ended fund. Do you want to be able to be investing in the semiconductor companies in the closing the fund and the tech hardware and storage we've been saying storage makes a lot of sense because data storage is going to be huge.
Okay. The next one is the financial sectors reporting the third highest earnings growth at 17.6 and all five of the industries within the sector are actually, um, having year over year earnings growth. Insurance is at 36.
Capital markets is at 28 capital markets. Believe it or not is where most of the BDCs fall. So, you know, consumer finance is like your bank financial services is like, I don't know, and then they have banks, but consumer finance is mainly like, I think small banks and banks are large banks, but anyway, banks are only at 8%.
So they're like, they're like the weakest of the five. It's in insurance and BDCs are the insurance numbers. Crazy.
Well, like the, the highest, um, there was a report that came out, like the highest, uh, amount of inflation occurred in the insurance industry. So the fact that our earnings growth is at 36% is kind of low actually. So that means there's some shitty insurance companies out there.
So you have to be like picking the better ones because they had the most, I think it was like 115% price increase due to inflation, but they only grew their earnings by 36%. That means there's some real laggards in the insurance. Industry of the financial sector.
That's crazy. Okay. Then the fourth largest earnings growth is healthcare.
It came in at 17%. We talk about this one all the time. Three of the five industries within the sector are doing well.
Um, pharmaceuticals is that 95%, which is insane. Holy shit. That's absolutely insane.
Uh, healthcare equipment and supplies is 10%, but, uh, the bio biotechnology is actually down like almost 40% year over year. So like don't invest in biotech. I know like a lot of people, like a lot of the penny stocks that people pimp out our biotech companies.
I honestly think that might turn around after AI gets dialed in. But I think until that happens, human's ability to differentiate all the complexity that goes into that is explained. But if you look at what we, uh, what we, like, I don't really pimp a lot of stocks, but like a couple of the ones we did were Bristol Meyers and Pfizer, and they're both pharmaceutical companies.
And it's because they're severely undervalued in the pharmaceutical area. And pharmaceuticals are just making oodles and oodles of money. So, well, and that would mean that they are going to turn around at some point and jump up to this, they should report back to the mean.
So they should go up. That's why we're in those. That makes a lot of sense.
95%. I cannot even get over that. And biotech is negative 37.
Damn. I mean, that might be why the white rhino can't reproduce. The consumer discretionary sector is reporting the fifth largest year over year earnings growth at 12%.
Five of the nine industries within the sector are doing okay. Oh, I'm curious to see what these are. Leisure products is up 150%.
What the heck is leisure products? That's like boats and clothes and shit like that. Broadline retail is up 89%. Textiles, apparel, and luxury goods are up 32%.
And automobile components is up 15%. Remember I said consumer discretionary, there's actually auto inside it. Yeah.
Okay. I see that part. So automobiles only up to 15.
So that doesn't, however, the automobile industry is down 17%. So that means people are actually not buying new cars. They're fixing their current car.
Which they should have been doing all along. So like, well, like I said, there's, there's nuggets of information in this. They're super helpful in like planning for your, your, your short term and your longterm investing strategy.
But the fact that leisure products is up 150% is insane. That like that right there to me, like they say in the market and the economy is shit, but like if people were spending that much on leisure products. That is crazy.
150%. And then regular broad line retails at 89, that's just like clothes and shoes and shit like that. I mean, like, Is it? Cause here it says textiles, apparel, apparel, and luxury goods.
There's a difference between like broad line retail. I don't know. I'm sure you can go find what these actually define somewhere else.
Like we didn't dig into that part. We're just looking at the, like giving me ideas for like where I want to be. Like, it seems to me like, unless you're a contrarian investor, then you might want to like, think about buying, getting a, a automobile company that has a pretty good dividend, like Ford, because they're down so much that's a, that's an option, not saying to do it, but like, I could see how you could use the company, like the, the, the, uh, the industries within the sectors that are doing so poorly and using that to your benefit, because that is what the contrarian investing is.
Everyone else is selling the new automobiles. So you can buy the new automobile companies that are severely undervalued. Um, it's a long wait for that to turn around, but it does pay off.
And this one here blew my fucking mind because everything we've heard, everything we've heard, like the last year is gold and silver. Or they're the, the, the, the savior of everything. When the apocalypse happens, the material sector is reporting the largest year over year earnings decline of all 11 sectors is at negative 9%.
I didn't realize that actually went in all four industries in the sector reporting decline metals and mining is 16% negative, negative containers and packaging is 15% negative construction material makes sense at negative seven and chemicals make sense at negative six, but the metals and mining being down 16% is insane because all we've been told is gold, gold, gold mining, silver, that seriously made me question, like, why are they trying to pimp gold? And I think a lot of people have positions in cold gold and they're trying to drive the price up so they can sell it and actually make a shit ton of money because like the fact that the sector itself is down as much before they bail. And then like the people in gold are going to lose. Wow.
Wow. That one's that's a freaking huge gold nugget. Yeah.
So that's what I'm saying. There's like a lot, there's lots of nuggets in the shit. Okay.
Now we're going to talk about revenue within the different sectors real quick. The I I T is reporting the highest year over year revenue growth rate at 10.4%. That means in, at the end of quarter two in 2024, they actually had 10, 10.4% more revenue than they had did at quarter two at the end of 2023. So for the six industries in the sector are reporting revenue growth.
Um, two semiconductors and semiconductor equipment and software are both having double digit growth. And there are two industries within the information technology sector that are having some problems. It's communication equipment and electronic equipment and instruments and components, which we mirror is exactly what we talked about in the last section.
So again, makes sense in the video. Just all I have to say is anything about it in the video. That's what the it sector is up so high.
I mean, the Google sometimes an Apple, but I think it's in the video cause it's the semiconductors. It's not like the actual other stuff. Yes, exactly.
Cause the semiconductor is like the actual like platform foundational pieces. AMS or AMD, whatever they're called. There's a couple other semiconductor.
I mean, I just saw, for example, a company that we held. I want to say seven years ago called Cirrus logic, CRUS like we should do an episode on semiconductors literally just smashed its earnings and it's stock went up like 30% that day is like, Holy hell. So like semiconductors are like the, um, the shiny growth stocks that everyone was trying to get into.
So we kind of try to avoid them unless they're, unless the metrics say they're undervalued, which in the video was undervalued when we got into it. So it's still undervalued. So if you're ever thinking about getting into the video on its, on its own, as opposed to, uh, closing the funds, it's super undervalued and it's in the, it's in the hot.
Yeah. Like if you're going to get in, getting in now would be a good idea. The energy is the second highest year over year revenue growth at 8.1%. And all makes sense.
Again, all five sub industries in the sector reported revenue growth, uh, oil and gas explorer exploration and production led with 15 oil and gas storage and transportation was 10 oil and gas equipment and services was nine integrated oil and gas was nine and oil and gas refining and marketing was four. I think that's going to be because like, we need to stay a little bit on oil until we can get the whole like renewable energy thing. Well, that's what I could, but that's like, cause I was just like what I took from this, like I've said this a while ago, so this just reaffirmed what I said.
Utilities are nice. The renewable energy is nice, but the money, but we don't have the capacity that we need, but the moneymakers are going to be oil for the foreseeable future. And it's because we don't have the renewables dialed into the functionality that we need in mass production with the equipment affordability.
So they're trying to get gas as a supplement until we wish they did. Like I wish the information I pulled actually broke this down here, oil and gas exploration and production, because I'm pretty sure that's all production. That's why the revenue grew.
It's not exploration. Yeah, definitely production. And I'm pretty sure the oil and gas storage is way higher than the transportation, probably, but that's just like, they didn't break it down.
I'm sorry. I don't have that information, but just saying that energy. And like, I remember I said, like I energy was down, like, Oh, when we previously, we discussed this, it was like one of the worst sectors.
Well, that's just good. As a contrarian, you want to be getting into the oil sector, the energy and oil sector, because everyone's selling them because they're scurred, but it's actually generating the second most amount of revenue. So yeah.
Had we got in before, when we talked about this, like you would have been up because it just went up for everything. And I mean, this could also be in, um, the problem is they have a lot of debt. That's why like the earnings per share is so like all over the place because they have a shit ton of debt.
Well, and this is, I think a very manipulated sector to the, just in general, we've had some bad issues, but I think this could also be high in Q2 in preparation for people to travel in summer. Cause that tends to be like a normal thing for people to do. And then the third highest, um, sector was the communication services, right? Again, remember we just discussed about like previously the communication sector sucked, but it's generating the third amount of the third most amount of money year over year.
And four of the five industries within it are having revenue growth. Only one in our interactive media and services had a double digit growth at 15, which makes sense. If you think about it like, okay, if people are tight on money, they're not going to get rid of their Netflix and they're not going to get rid of their Hulu.
So that's media, media, interactive media. That's more like metaverse stuff. Same difference.
Not necessarily, but I think more companies are moving towards the metaverse components or the interactive because people want that interactive ability and not just to be straight up consumers or vet, veg, screen cards, screen cards. That's what I call you. Screen card.
Screen card is where it's at. But seriously, just media is negative one and the media interactive is 15%. Like that's a huge difference.
And the, um, the biggest decliner of all the different, uh, revenue sectors with revenue was materials. And that is constructions down for chemicals down three containers and packaging down to, but metals and mining are actually up 3% revenue wise. That's interesting.
So if you scroll back up to what we just said about materials, about how they're What section was that? Like the metal, the metals and mining had the biggest earnings decline. Earnings decline. That's what it was.
But they actually up 3% with their revenue. So that means earnings decline means that they're not worse. What everybody thinks they're worth.
Yeah. They're not worth what they're like. They're, they're up to too high.
Yeah. Okay. But they're actually generating money.
But at the same time, I wouldn't, I wouldn't touch metals and mining. I would actually sell those positions. Are we in anything? Um, we're in, um, BSM and our, um, retirement account because it has a really good dividend.
It's a really good company. It's a small cap. And then we are in, um, I don't think there's an, I think KRP is another one that does oil and minerals, but KRP is pretty bang.
And they're both, they're both small caps. We don't have any large. Yeah.
But that's land royalties. And what I was reading in that one book on investing was talking about companies like that, that have the land royalties they're under contract. So even if mining and oils, whatever goes down, they're still getting paid.
So those profits are still, we're, we're still going to see the proceeds. That's why I'm in them. Yes.
They're just like, um, as we think of toll roads, they were literally the toll booth. Yup. And that's the thing.
Like, that's why we get in towers for like sell stuff. We, we like to have the actual infrastructure. Okay.
So that is like the, I mean, this thing was like 68 pages long. So that's like the, the, the important parts I took of it. Um, so what do we take away from all this? First, like I've been saying, the economy is meh.
It's not, it's doing pretty well, but not great. No matter what you hear in the media and what the experts say, companies are making a shit ton of money. That means the consumer's spending a shit ton of money.
However, the consumer isn't spending money on what they usually do. So it's kind of confusing them because normally it's consumer discretionary, consumer staples, utilities, material, materials, and energy, but they're actually spending their money on healthcare, it financials, real estate and communication services. If you look at insurance, if you look at, well, by the way, that makes sense.
When money gets tight, you're actually going to take care of the rent or mortgage. You're going to take care of your body, healthcare. You're going to take care of your money to make sure your money's not all going away, which is financials and your, and your insurance for your vehicle.
And you're going to keep your streaming services and cell phones. It makes sense that they're spending money on what they're spending money on. Yeah, I agree.
So the experts can just like lick me, pound sound. Um, what I do with the, what I, why I think these are super important and the, why I continually like torture myself with this just stellar reading material is I like, this helps me look forward to the rest of the year using company's own projections to like make a plan going forward. I like to have, I like to have at least five different plans in place just in case shit hits the fan or maybe things go better, whatever, whatever the case may be.
I have like five different financial plans at all times. Just in case things change as we actually go through the motions. But yeah, I like the fact that you do such future projection stuff.
I'm more of a live in the moment type person. So if you look at like the, uh, what the actual companies and within the different sectors are saying, it looks like commute, consumer discretionary, consumer staples, materials, industrials, and energy will be the laggards for the rest of the year. Just based on what the companies are saying within different things.
They're not, they're like, they're the ones that have the, like the highest percentage of, uh, um, companies saying, well, your projections are wrong. We're actually going to be, we're going to come in below that. They're actually doing a decline compared to what the experts are saying.
That music should sound familiar. That's my ringtone. And it's the podcast.
Revenue and earnings growth are projected to be quite low in all those sectors I just mentioned. And companies are actually coming in and saying, um, your projection would be low, but they're going to be lower. So like, I would be really hesitant to get into any of those other than like the energy, like we were just saying with the energy, if you can find that like, um, a really good energy company say like a EPD and EPD, it's like it's a financials and it's, um, and it's metrics, valuation metrics say, Hey, this is undervalued.
Why not pull the trigger? Cause even if they're a laggard, that means they're going to go kind of sideways down to the rest of the year. So you're going to be accruing more dividends for the rest of the year at a lower price, which is good. And then when things turn around, you're going to have a lot of, uh, actual like value growth.
IT communication service, real estate, utilities, and healthcare are projected to be area where the money will be spent by the consumer for the remainder of the year. That shouldn't like, again, we just discussed that it shouldn't come as a surprise. That's like, this is how it's going to be until something happens, whether we go into a recession or whether the rates are dropped and we just go into a crazy bull market, the consumer is going to be watching where they're spending their money and they're going to spend their money on what they think they need.
Yeah. And this changes pretty much every time, like some thing changes. So you have to reevaluate this all the time.
That's one of the things I love about Tim, where he can just, yeah, this is a quarterly thing. It's so annoying. Take all this stuff in and just give me the highlights.
Yeah. With periods of high interest rates and high inflation, it makes sense. It makes sense that a lot of the companies are reporting higher EPS and revenue and profit margin.
They're just making more money because shit costs more. Even with the Fed cutting rates at some point this year, maybe they cut them once, maybe they cut them twice. Maybe they cut them 0.25, maybe 0.5. It doesn't matter.
Irrelevant to us as investors, like whatever, just be like in the right evaluated things and you'll be fine. Revenue, EPS and profit margins should remain elevated for the remainder of the year and into next year, regardless, because like I was saying before, like this is three, six, eight, nine, nine months in the future. So the revenue and EPS are still going to be high, even if they cut rates.
The companies are still making a shit ton of money. If you have to think, quarter two, I think it started in April and it ends in July, but the majority of the companies report well before July. So this data is like two months old.
So they're like at least two months behind on everything. So when they report in quarter three, even with the interest rates being cut, they're still going to have elevated revenue. Got it, got it.
So the question that everyone wants to know with based on the earnings data, where will we be investing money? Well, there are three sectors that I think will be safer to invest for the futures, utilities, energy and real estate, which when the rates come down, these sectors should have better margins, more revenue and higher earnings. So you're basically getting into them before anyone else does because everyone else is scaredy pants. Yep.
And that's the best way to actually make a lot of money. So REITs for sure. I've been pounding REITs forever now.
Utilities, I've been pounding utilities forever now. And oil, energy, we have a lot of exposure to oil and gas and things like that in both portfolios. That should come as no surprise.
Those are the three areas that I think are the safer ones to invest in. And undervalued. Right now they all have elevated levels of debt because of the high interest rate environment.
So if REITs get cut, they're going to refinance that shit as soon as they can to get lower rates. Probably they'll go out of a fixed rate into a variable rate at that point. The higher profit margins.
The variable rate, meaning every month it's updated. So if they cut the rates in, say, September and you refinance into a variable rate and they cut it again in December or January, well, your rate's automatically going to go down to the December or January level. So that's why they do the variable on when the rates are being cut on the down, but they kind of do a fix on the way up.
That makes sense. It's like the normal consumer. That's what families should do when they refinance.
But they got to have the data. Companies like families have to pay their debt much. So their interest and principal payments are high right now.
And most of these companies in these sectors are using most, if not all, their revenue collected each quarter for strictly paying the interest on their debt. And that's why we've been... I'm not saying the interest rate needs to be lowered, but we can benefit from it. Yeah, you can get your positions in place in preparation for when it happens, not hoping it happens soon, but when it happens.
Because again, the awesome part about dividend stocks is that when prices are down, you actually accrue more and more shares because the prices are so low with those dividend reinvestments. So it's like this is an amazing time to buy these lower priced stocks, the REITs, the BDCs, these financials that are going to hit. The BDCs are probably going to confuse people.
And I'll explain to you why I think BDCs are going to be super huge here in the next 12 to 18 months. Sure, they're going to make a lot more money on their loans with higher interest rates. But what they actually do quite ingenious is they'll actually... Their debt that they take on is variable rates.
I just kind of went over this. The variable rates means they're going to be paying less interest the lower the interest rates are. But what they do with the loans they make out to companies is that's at a fixed rate.
They're in a 5.5% area right now. So it would be like a 7.5% to 8% rate. That's fixed for the price of when they loan money out.
So they're going to have wider margins the lower the interest rates are. Does that make sense? It does. OK, I'm not sure.
But it did make sense to you. Rewind a little bit and re-read some of that. That's the earnings snapshot of quarter two.
I mean, it is some stellar shit. I mean, it really is important information. If you can grunt it, bear it, listen to what Tim's doing.
He's taking those crazy amounts of pages and digesting it into like a 50-minute podcast. So I mean, that's gold. That's absolutely gold from my perspective.
So if you don't understand how much you're getting here from him synthesizing that information for you versus the experts freaking cherry picking and hyping crap, gold. Yeah, it's a lot of data. But I hope it helps with your planning because planning is the key to success.
And getting your positions in place before the market goes into like hysteria one way or the other, like you benefit from them, but you got to be ahead of that ball. And that's why I said the forward thinking is super, super important when it comes to investing because you have to be able to look like 12 months down the line like, OK, well, REITs are going to be awesome because they're going to have a low interest rate. And people generally will get into REITs once the turnaround happens and the prices start going up.
So if you can get into it on the way down or like on that consolidation period where kind of trade sideways, awesome sauce. You don't want to get into them, obviously, like two years ago on the way down because that's bad sauce or just like a longer way. But if you can wait that long, then kudos to you.
All right, guys. So like we said, hopefully this does help with your planning for what you're going to get into for your positions. And next week, I'm not entirely sure what we're going to talk about.
We still haven't had a sit down. I've been big time condo mode. So probably something way more interesting.
Yeah, we'll try to make it more interesting than this to give you guys like a reprieve. So, all right. Enjoy your week.