The Setup of the Year is Here | 5.19 Yields, BofA Sell Signal, HD at 52 Week Lows

[00:00:00]Hi everyone, I'm Sam. I'm filling in for Paul while he's on a trip. We have a lot of interesting stories to cover for you.

[00:00:06]It is just past 4 o'clock. The market just closed and the Nasdaq is down big.

[00:00:11]The S&P 500 fell as well. You can see right here, daily move for the NASDAQ almost a percent, 83%. Let's go take a look at what was going on in the market today. All right, so first up, I have a headline that caught my attention today.

[00:00:26]We were just talking about in our everything Money Group chat. Treasuries, the Treasury yield on a 30-year basis crossed over 5% up to almost 5.2%. It was just like last week that it crossed 4 and a.5%. We're starting to see it continue to rise. So guys, why is this important? Buffett has a quote that he's used for decades that interest rates are gravity on equities. A lot of people question what that means. Let me give you guys a basic breakdown of it. So when you are comparing what multiple a company should trade at, right, in equity, you compare it oftent times to a risk-free opportunity, which would be treasuries.

[00:01:06]So if treasuries are at 5.2% 2% versus if they're at 1%. And this is something that Monish actually said during our interview, Everything Money's interview with him way back in the day. That at 1% it's a lot more frothy to tell if companies are actually overvalued if that's going to be the long-term interest rate. Because think about it this way, if a company trades at a 20 PE, if we flip that upside down and make it earnings divided by price, that gives you your yield. So a 20p would be a 5% earnings yield. Well, these are pretty comparable. So if you said that the treasury rate is 5% and a company's trading at 20 PE, now obviously there's business risk here, but maybe if that earning stream is going to grow say 7% a year, maybe that's a fair comp, right? A risk-free 5% versus a 5% with business risk, but it's going to grow each year. Now if it drops to 1% what PE is equivalent to a 1% yield 100 times. So that's why it becomes a lot more frothy because all of a sudden the comp goes from 20 times earnings to 100 times earnings. Now what you need to remember is over long periods of time there's often mean reversion. So when interest rates are at 1% a lot of people thought that that would perpetuate out and they would stay at 1%. But that was obviously not the case. So they rose back up to over 6%.

[00:02:29]Now they had fallen back to 3 to 4%. Now they're back up to 5% again. So remember that makes an impact on equities. And if you see interest rates rise, you will probably see stock prices fall. Okay guys, now news story number two, Home Depot, which is at its 52- week low.

[00:02:46]Guys, this was a company during COVID that was untouchable. Everybody was spending on home furnishing. But since then, as a lot of people with a long-term mindset would have said, they've slowed down a bit. Right? that COVID boom was not going to consistently carry 10 to 15% growth a year for this business. So, they're seeing revenue.

[00:03:03]They're seeing profit growth stall, but they just reported earnings. We have a double beat. I'm going to give you a quick breakdown of it and then we will go and look at how the stock price is moving. But you can see right here, 41.77 billion in revenue, $343 in profit. Guys, it looks strong, looks sturdy, slight beat on top and bottom line. Now, guys, I have a release pulled up. Here's something really interesting that you've heard Paul, Mo, myself, Dalton, we've all talked about it on the Everything Money channel for a while. I have this conversation with people in our live streams all the time when someone brings up retail. What is the number one most important metric that you should probably be looking at?

[00:03:42]Comparable sales growth. So, what does this say? Home Depot says customers are healthy. Here's what's holding them back. So, profit and total sales beat expectations.

[00:03:53]comparable sales growth came up a bit short. So I would not be surprised if the market's reacting negatively right now. Okay, so not too bad, but we have basically a non-m mover, right? Nothing going on here.

[00:04:05]8% move today. Just about flat after hours. Nothing too crazy. Again, this is a stable business and it's trading at 52- week lows. So maybe even negative news isn't causing any of those investors who are currently in it to go running for the hills. Now, this is one of the companies that has had the most conversation around it as of late. I have been on X. I've been in our everything Money community, non-stop discussion about Google. So, why is that? Number one, Google reached its highs of like $400 per share in the past week. On top of that, for those who don't know, 13Fs were released just last week. So that means Warren Buffett, Bill Aman, Monish Pabry, Guy Spear, all of these great investors who you follow had to report their portfolio moves for Q1 of 2026. So what are we seeing right now? Google debuts new AI model. So I was just reading about this earlier.

[00:05:00]They're trying to compete with ChachiBT and with Claude, which is owned by Anthropic. Obviously, those are going to be two of the biggest IPOs ever coming up maybe later this year. But on top of that, Google was bought heavily by Buffett, by Berkshire specifically, right? Buffett's technically retired.

[00:05:17]He's now chairman of the board, but they have doubled down on their Google bet that they had originally placed at the end of 2025. Now, at the same time, Bill Aman exited his Google saying that it is now trading at frothier valuations and he actually shifted all of that money that he made and it was a massive sum on Google, right? he made like 300% plus and he moved it to Microsoft which is currently more beaten down. So what he basically said is both of these are excellent companies. One of them I bought at a low valuation is now trading at like 40 times earnings whereas the other Microsoft is trading at 21 times forward earnings. So he shifted from one high quality business to the other one taking a premium and putting it into a company at a discount. So anyways guys let's go and let's take a look at Google. We're going to pull up the eight pillars, the key metrics, analyst estimates, and stock analyzer. Let's figure out if these decisions make sense today. So, first off, let's marvel in this chart, right? Look at this right here. I believe this company got as low as around $84 per share, maybe even a little lower.

[00:06:23]Has now reached that 400 mark, guys.

[00:06:26]That is incredible. What a return, especially from one of the most undisruptible companies in the world.

[00:06:34]one of the highest quality businesses, high ROIC. We are going to show you that right now on the eight pillars. But this is an incredible company and it traded at a massive discount because remember it's all about sentiment, right? When sentiment shifts, stock prices fall and rise. In the short term, the market is a voting machine. In the long term though, it's a weighing machine because Google's earnings and Google's revenue would look like this over that same period of time.

[00:06:58]Now, there were dips along the way, right?

[00:07:01]But when you look at the long term, you look at the three, five, 10 year view, the quality, the durability, and the cash flow of the company equates out to the stock price. So guys, the eight pillars, we have something we absolutely love right here. We have six check marks which represent quality and then two X's which represent the valuation. This makes it very simple as a value investor because what you need to do is just go figure out using the stock analyzer what price you need to pay to achieve the expected return you want for Google. Now analyst estimates you can see right here they are expecting EPS to double over the next 5 years or so. So let's do some simple basic math right? So let's say that we put a 20 times multiple on Google right here. that would get you to 440 a share. Now, obviously, I think you can make the argument that Google is worth a far higher multiple, right? So, if you come in here and you say 30 times, that gets you to around $660 per share. So, I could understand why if it was when Google pulled back to say 28,300 range, Berkshire was still interested. Investors like Chris Hone were still interested because there may still be upside potential. Now the flipping your coin like Monry says and heads you win tails you don't lose I don't know that it's there on Google right now certainly was at lower levels right it trade between84 and $180 over the course of the last last like three and a half to four years and then skyrocketed just over the past 12 months okay now final piece of the equation we have the great story behind the business let's determine what price we need to pay today so stock analyzer for Google I'm going to walk you guys through my assumptions so this is a 10ear bas Remember, as this company continues to scale and get bigger, growth will taper back. I'm not saying it's going to happen fast, right? 13% growth in the next 10 years is still probably more than analysts would bake in right now.

[00:08:55]But I am saying that margins will stay consistent. But one thing that I'm factoring in here, this 38% profit margin, and you need to remember this when you look at Google because one thing that it will show is that the current PE of the company is like 31 times earnings. But in reality, that's factoring in the benefits from these investments that they've made in these companies that are getting ready to IPO, right? A lot of that is being shown as part of their gap net income. What you need to do is go bake that out. You need to take that away. And what happens is it's really trading at like 40 to 45 times earnings, which is a big difference, right? So in Warren Buffett and the interpretation of financial statements, it is said that Buffett considers 40 times earnings plus some a price that even for a great business, you need to at least consider whether the opportunity cost is still there. Now final piece of it, right? Your multiples, your PE and price free cash flow. How do we determine that? We start at the long-term average of 16 to 17 times earnings. And for a great business like Google, right? high ROIC, very little debt, a ton of cash on the balance sheet, strong margins, strong growth. What do we do? We pay a premium.

[00:10:03]So, I went with 20, 23, and 26 times earnings in cash flow. And then finally, 9% desired return to get your intrinsic value. What does that bring us to?

[00:10:15]Okay, guys, here's the thing. If you say that Buffett, Chris Hone, some of these great super investors were buying in Q1 when Google had a bit of a pullback, you know, it rose a lot to like 320, then it pulled back to 280. Well, you're probably looking at like a 12 to 13% middle-end return for Bergkshire with hundreds of billions of dollars in cash.

[00:10:37]That's pretty attractive for a business of this quality. Overall, I would not say that Google looks bad. So, I would not necessarily say at 3.84, 84. If I owned at a cost basis of say $100, I'm not necessarily selling it, right? If I've made 30% annualized for the past 3 to four years, I may not be upset if I end up with somewhere between 7 and 13% to just continue holding my Google shares, not paying taxes. Now, final thing I want to tell you guys about today, we have something huge coming tomorrow on this very channel. Nvidia earnings. the single largest company in stock market history right here after the close 400 p.m. we will be in here recording the video. So, make sure you go check it out. You watch it. Is going to be an awesome video. And a lot of people say that Nvidia, which is currently at over $220 per share, is what the whole market is hanging on.

[00:11:33]They need continuous great quarters to hold up this all-time high that the market is at. All right, guys. Thank you for watching. If you enjoyed this video, go join. We have a $7 trial. Go check it out. Schedule one-on-one with me. All right. Let's have a conversation about investing, about your goals, and whether or not everything Money is a fit for you. So, thank you for your time and tune in tomorrow for Nvidia earnings.