Seeking Alpha

Earnings Speak To Continued Equity Upside, Says Bill Gunderson (Podcast Transcript)

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Includes: ADBE, BX, CHTR, CMG, DOORD, DXCM, LULU, NFLX, PODD
by: SA Marketplace Roundtable Podcast
Summary

Bill Gunderson discusses his bullish view for equities and provides some favorite stocks for earnings season and beyond.

One successful "earnings story" is Charter Communications, which Gunderson holds in his portfolio and continues to be optimistic about.

China trade talks are a concern, but one that should be resolved relatively soon.

Favorite ideas include Lululemon, Chipotle, Blackstone, and others.

Editors' Note: This is a transcript version of a Marketplace Roundtable podcast we published yesterday. We hope you enjoy it.

Listen and subscribe to the Marketplace Roundtable on these podcast platforms:

Nathaniel Baker: Welcome to the Marketplace Roundtable podcast. We speak with Seeking Alpha marketplace authors about their investing styles, their views on the market, and their favorite investing ideas. I'm your host, Nathaniel Baker.

Before we begin, a brief disclaimer, Seeking Alpha is a website where authors from around the world can share their ideas and analysis on the stock market. The Marketplace is our platform for authors to run investing analysis and idea services so that readers can take your investing to the next level. Nothing on this podcast should be taken as investment advice. A full set of disclosures will be provided at the end of this podcast. For reference purposes, this podcast was recorded on Wednesday, October 2, 2019.

Today, I am joined by longtime contributor to seekingalpha.com, Bill Gunderson, the CEO of Gunderson Capital Management. Now Bill has been active on Seeking Alpha for some time since 2012, and a professional investor going back 22 years. He's the founder of Best Stocks Now!, a premium research service here on Seeking Alpha, featuring the four various portfolios. A subscription to the Best Stocks Now research service gets you exclusive ideas, a weekly in-depth newsletter and you get access to the Best Stocks Now database for portfolios and live trading throughout the week. More information is available on Seeking Alpha by searching for Best Stocks Now. There is a free trial available. Bill Gunderson is also on Twitter, @BillGunderson.

Okay, let's get into it. Bill, welcome to the podcast.

Bill Gunderson: Well, thank you for having me.

NB: It's good to have you. Let's start out, and why don't you just tell us and the listeners a little bit about your investing strategy.

BG: Well, you know, I've been a professional money manager for the last 22 years. And I've had some really good mentors over the years. And I would see that most people fall into one of two camps or either value investors looking for cheap stocks that are usually out of favor, contrarian style of investing or there are more from the CAN SLIM momentum investor's business daily school of thought. And over the years I have endeavored [ph] to be right in the middle. I do -- I combined value of what I like. How do you make sense from a valuation point of view? But I also like to see that momentum that Alpha and that performance there at the same time. So that's why I call it, I'm seeking the Best Stocks Now in the market that I can -- I [indiscernible] point.

NB: Okay, fair enough. So you've been doing this for some time, 22 years. What would you say is a key lesson that you've learned in your investing experience over this stretch of time?

BG: Stocks and indexes follow earnings, I can say without any hesitation, that is the number one rule of the market and stocks. Why has the market been going up for the last 10 years? Well, look at a chart of S&P 500 earnings they've been going up every year, last 10 years after bottoming in 2009. And the same can be said about individual stocks. You want companies that have growth, those that are growing the stock will follow right along as long as the stock doesn't get too expensive.

NB: Okay. So where do you think that -- it's been a pretty momentous year. Where do you see the market today? And especially as we look at earnings since, as you so correctly point out, this is the driver of stock market performance?

BG: Well, one just has to look to next year's earnings estimates, it's not only these stocks follow earnings, but they also follow expectations. This year 2019, the S&P were expected to make $165 per share, which will be a record year for earnings. You know, we were at $58, in 2009, when this all began. And next year 2020 the consensus estimate for the S&P 500 is currently at $180. So that's 9% higher than this year. I expect the S&P as long as it may to stay that course, to go about 3,200 in the next 12 months.

NB: Is there no chance that these earnings estimates are a little bit, how should we say, not entirely grounded in reality?

BG: Well, that's why I update those estimates every single day. But the consensus estimate comes from the biggest firms on Wall Street, they have much better pulse on the economy, the market, than I do, firms like Goldman Sachs, JPMorgan, et cetera. And then they throw all their estimates into a pot, you get a consensus estimate, and yes, it's subject to change. But having said that, it has hardly changed at all over the last 12 months, it's pretty much remained at that $180.

NB: And what about the fact that external forces kind of from a top down macro factors here will very quickly affect the earnings picture before people really have a chance to factor that into their calculations? Is that something that you think about as well?

BG: Absolutely. And that's why, I maintain my own estimates on the S&P 500. I update them that we're going to start an earnings season here in less than two weeks. I watched every single company report, earnings, and I check and see where their forecasts are for next year to see if there's any trends upwards or downwards. So yes -- and another thing I also look at charts. So a lot of trouble in the market shows up in the charts, way before the actual numbers start to go down by the analysts. So right now the charts are fairly healthy. A lot of them have pulled back recently the 50 to 100 day moving average, but nothing is really breaking down yet.

NB: Operative word, but for now, you're still optimistic?

BG: Yes, I have a 3,200 to 3,300 target price on the S&P 500.

NB: Okay. Now looking at your page on Seeking Alpha, it seems that you follow a wide array of sectors. Is there any particular sector that you focus on? Is it fair to say that you're pretty sector agnostics?

BG: Well, yes, sector agnostic, but by nature, most of the growth that is going in the technology sector is going to come in the medical sector, either be in the automobile sectors, are going to be in the steel sector. So I tend to favor the more growth oriented sectors.

NB: Is there anything specific there that you're watching, as we go into earning season and geared towards 2020?

BG: Yes, comes down to the individual companies, one by one, they'll report, Adobe (ADBE) and Charter Communications (CHTR), Shopify (SHOP), Amazon (AMZN), Facebook (FB), and each and every report will be just as important as the other one. And I'll be watching for that. Well Netflix had a giant stumble during the last earnings season, I'd like to own Netflix (NFLX). So I'm looking for a company that all of a sudden is straying from the course that directed, projected, and of course that they've been on.

NB: Are there any other, you mentioned Netflix, are there any others that you think have been perhaps been straying?

BG: You mean in the last earnings cycle?

NB: Yes. Yes.

BG: Well, Netflix was the real big -- Facebook always faces a lot of scrutiny from regulators. You're seeing that in Google (GOOG). You're seeing that in Amazon. But they're still some of the best growth companies out there in the market today.

NB: And the valuations don't scare you at all?

BG: Well, as long as they can keep that growth.

NB: So we've talked a little bit about, the earnings season and how earnings is a main driver of performance in stocks and in indexes. And you have a pretty benign view if I can say that about, the markets and where things are headed. Is there anything that scares you about markets or about your portfolio right now?

BG: Well, the biggest cloud hanging over the head of the market is -- continues to be the China. Think that the pressure, you've got a President that wants to remain a President and I think he's going to do whatever he can do to keep the economy going. Do you think there will be a resolution to that situation? I think by the end of the year, maybe even over the next 30 days, I think it's just got to happen. So I guess not getting a resolution or some real big question mark over the election coming up. I think those biggest -- I think the bets kind of taken out of the equation right now. China is the biggest factor.

NB: Not to get political, but I'm sure you've seen the stories this week about, and you speak of Facebook, this kind of showdown between Elizabeth Warren, who is now probably the leading candidate for -- to win the Democratic Nomination, and Mark Zuckerberg of Facebook. Is that type of thing, as you know, any of these political -- is there any political concerns there at all in for 2020 and 2021?

BG: I have -- that's a very large concern. It appears that Joe Biden is probably not going to be the Democratic nominee. You've got Bernie Sanders on the operating table today with heart trouble. I think you're right. I think Elizabeth Warren will become the number one contender right now. And I could just say for Wall Street's point of view and of course they've made it very public, do not want Elizabeth Warren anywhere near Wall Street or anywhere near the market. Doesn't matter who I want or who you want, but for the markets say, the stock market is scared to death of Elizabeth Warren, scared to death of Elizabeth Warren.

NB: Yeah, yeah, true, true enough. Okay. All right, so let's get back to some stock ideas here. What are some of your favorite ideas right now?

BG: Well I have written several articles here, recently I have been pretty active. Charter Communications, the stock -- or the market's down 480 points right now, if you look at CHTR. It is actually having a pretty good day today. It's up. Charter Communications, they had to change their name because they are a cable company and they were disliked by the customers. They changed their name, but here's the deal earnings have gone from $0.95 per share in 2016, they're expected hit $12.73 in earnings next year, which would be a 96% increase. So I have a large position in Charter, favor the large cap companies.

I recently wrote about Lululemon (LULU). I have a big position there. Lulu has a very strong history of beating earnings. The stock has been out of tear [ph], they had a great quarter. I own Lululemon. I also like Chipotle (CMG) a lot. I think Chipotle is [indiscernible]. That stock lost two-thirds of its value during the ecoli issue. They are back to grow their earnings by 30%, 40%, 50% per quarter. So those are a few. Dexcom (DXCM) is up 400% since I wrote about it last, I still like Dexcom. Insulet, which is PODD, has got approval for a revolutionary insulin. I do like companies that are disruptors like Dexcom and Insulet. I don't like companies that are being disrupt. I like that are disrupting old time ways of doing things.

NB: And yet, you know Lululemon, LULU ticker, retail company, they may have an e-commerce, I imagine they have a pretty active e-commerce at present. But they -- I mean yeah, this is retail and retail stocks are the one thing that has been displaced by technology over the last couple of years, but that's not a concern for you?

BG: Well, that's the only retail stock that I own. The other one that I did own, I pulled the plug on is [indiscernible]. Somehow if they are able to see off the threat by online. Lululemon has a strong culture, it's almost a cult favorite and they get -- have a very big margins in what they sell. And I still think it has few years left where they can get to where they want. And Q2 will have big earnings.

NB: By the way, Chipotle, CMG, as far as I know has not yet come out with a meatless product. But there's a potential catalyst.

BG: It will, yes.

NB: Their shares too like everybody else's today as we record this on Wednesday, October 2, in afternoon is being across a broader market selloff and some of the retail specific names are being particularly affected. And a lot of these like Chipotle is kind of near all-time high. Lululemon has come down a bit, and -- but you think that that's not a concern for you.

BG: Well, if you look at my insight yeah, I do five year target price. And I match the five year estimated growth rate and I extrapolate earnings out. Take a look like five years down the road and then I apply a multiple to those. So Chipotle, since I have a $1,600 target price is about $800. And you know that all that setting new highs argument is not a valid argument if you have done valuation. The stock's been hitting new highs for years. If you never bought a stock that was hitting new highs, you would miss some of the great winners of all time. So yes, I can find your valuations and like I said Chipotle I have a $1,600 target price. That's is in my latest article that I wrote about this.

NB: Yes. And that's an upside of about 100% as we sit here.

BG: Now that's over a five year period of time.

NB: Sure, sure.

BG: So I like stocks that have at least 80% or more upside over the next year.

NB: Talk me through some of these -- the other ones. What was the -- what was that, Dexcom, was that it?

BG: Yes, Dexcom came up with a very revolutionary device, a disruptor of the old pricking your finger with a pin to blood test your glucose levels, blood sugar. They have a device that's a wearable, it's of course in wearable technology sector and quite revolutionary, very disruptive. Apple it's you know -- it's coordinated with the Apple iPhone. And it automatically takes that -- it's a continuous glucose monitoring [indiscernible] is the companion stock, that Insulet has a device that actually pumps the insulin into the person's system.

NB: And will this company need to come up with new products at some point or is just enough -- there's enough of a moat with this one?

BG: Yes, that was a pretty good moat around both. And diabetes is probably one of the biggest growing problems. With all these non-meatless products, food and everything available, now you can have it delivered to your house by Door Dash (DOORD), but the diabetes, this is only going to become a bigger and bigger problem.

NB: Okay. What else, Charter Communications. Let's go back to that real quick. I mean, this was -- yeah, and this one is one of the outliers today. Its shares are up 1.5% when everything else is down. So what it -- what do you like about this?

BG: Earnings, that's absolutely an earnings story.

NB: Right.

BG: You know, they have gone from $0.96 in earnings in 2016, then they went to $2, then to $5. This year they were $6.50. Next year $12.73. We have 96 in earnings in the next 12 months that's pretty phenomenal, especially for a $91 billion large cap company.

NB: Yeah, yeah, completed an acquisition that was a couple years ago. Formerly bankrupt, although it was so long ago at this point. I don't even know if it's worth mentioning, interesting. Okay. Any other ideas?

BG: In the asset management space I like Blackstone (BX), which has pulled back here recently. Blackstone has been a phenomenal performer. It's delivered a lot of alpha. The name of the site is Seeking Alpha and there's no one who knows Seeking Alpha more than I do. Blackstone has a 4.5% dividend yield. And I like total return. You know a lot of people chase these, 9%, 10% dividend yield. But there's no growth in those companies. I think they have a company that is also growing. I call it dividend and growth. I want growth in earnings along with that dividend. That way I get capital appreciation on the way, Blackstone would be my best idea as far as a total return stock over the next several years.

NB: Yeah, BX is the symbol. This one had an IPO way back in, what 2007, was one of the first -- if memory serves, private -- one of these private equity companies to come public, had a huge run this year, started around 30 and it's now up around 40. It was up in the 50s and now it's around 46. And yes, yield now is almost 4.5% as you say. Is there no concern with this that you saw the news this week, obviously very zero commissions? Would a company like Blackstone be affected by that? I mean, they do investment matter.

BG: No, no, that's -- that's more of the discount brokers. That was a big shot, that was a major shot. I have very little exposure. They are fighting low interest rates, and fees and commissions dropping and dropping, tough, tough spot to be in for the financial sector.

NG: Interesting. Okay. Well, these are some good ideas for our listeners to mull over. And if you've been enjoying this Seeking Alpha Marketplace Roundtable Podcast, you can subscribe through iTunes, Stitcher Google Podcasts, Spotify and really anywhere else you find podcasts by searching for Marketplace Roundtable. You can also give reviews on those platforms and other platforms to help investors discover the podcast.

I've been speaking with Bill Gunderson, who runs the Best Stocks Now marketplace service here at Seeking Alpha. You can sign up for Bill's service either by going to seekingalpha.com/marketplace and looking for Best Stocks Now, or by typing best to stocks now or Bill Gunderson into the site search bar at seekingalpha.com. You can of course follow Bill on seekingalpha.com and enjoy his free content there.

Disclosures I, Nathaniel Baker, I have no position in any of the securities mentioned on today's podcast. Bill, what about you?

BG: Yeah, my firm owns all of them.

NG: All the stocks mentioned on today's podcast. Very good.

BG: Yes.

NG: Awesome. Okay, well, great. Well, thank you so much, Bill. And thank you all for listening and we look forward to speaking to you again next time.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Bill Gunderson is long CHTR, LULU, CMG, DXCM, PODD, and BX.
Nathaniel E. Baker has no positions in any securities mentioned on this podcast.
Nothing on this podcast should be taken as investment advice.