Stocks pull back 5%, Tesla Lays of 10%, and Q1 Earnings Coming in Hot!

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Market News and Short-Term Predictions

We're back baby! Earnings season is upon us and with that brings back volatility and more information on how company earnings have done in Q1 of 2024.

Below is this week's current lineup with a couple of names in the public portfolio that are core positions such as UNH and TSM (which I am excited about with all the focus on semiconductor stock this past quarter).

Since we have UNH earnings out already at the time of this newsletter, I figure we dive in as I have been recently buying more into the dip as of late with the cyber attack and medicare advantage news which brought the stock down a couple pegs this past month.

Overall the earnings beat expectations. Below are the major highlights:

• UnitedHealth Non-GAAP EPS of $6.91 beats by $0.29,

• Revenue of $99.79B beats by $490M

• Total cyberattack impacts in the first quarter amounted to $0.74 per share and the company estimates full-year 2024 impacts of $1.15 to $1.35 per share.

• The company maintained its adjusted net earnings outlook of $27.50 to $28.00 per share ($27.53 consensus).

• The first quarter of 2024 medical care ratio at 84.3% vs.82.2% last year.

The overall consensus from the earnings is that the cyber attack is more of a short-term issue and with the current FY earnings estimates, the stock would be trading at a P/E of 17 at the end of 2024 at current stock prices.

For me, that represents a decent valuation to earn this cash flow/dividend compounder. I think this earnings bodes well for another position I've been building up in CVS.

Switching gears to the overall market, we are finally seeing a 5% pullback in the markets and are back to levels on SPY we haven't seen since...February.

I for one enjoy a good pullback since as a long-term investor I am getting better entries for stocks I like. As a reminder, 5-10% pullbacks are relatively common in bull markets.

Granted I thought it would happen when weekly RSI entered around 70 back at the end of January. In actuality, it took around 2 full months after that while remaining above 70 the whole time to have a 5% pullback.

Timing pullbacks perfectly is tough!

Lessons to Be Learned

You may have heard that Tesla is laying off more than 10% of its global workforce (14k jobs), an internal memo seen by Reuters on Monday showed, as it grapples with falling sales and an intensifying price war for electric vehicles (EVs).

"About every five years, we need to reorganize and streamline the company for the next phase of growth," CEO Elon Musk commented.

Are layoffs good for stocks? It depends and is the reason you get a mixed response in stock price after a company announces layoffs.

Here are the good reasons for layoffs:

• The company overhired and no longer needs the headcount.

  • A prime example of this was stocks like Amazon, Google, and Meta who had hired way more than they needed expecting the Covid boom would last longer.

• Trimming down the fat.

  • If a company lets go 5-10%, it can still likely run just fine but it can save hundreds of millions in annual expenses.

On the flip side here are the bad reasons for layoffs:

• The company is running into cash flow issues and needs to cut costs no matter what.

• The % laid off is greater than 20-25% which may lead to burning out the remaining employees or shake morale.

If you can decipher why a company is laying off employees, it is usually an indication of whether it is a sign of being more efficient or going into survival mode.

In regards to Tesla, it feels like it is somewhere in the middle. Getting rid of headcount while still expecting growth will put pressure on a culture that is already lean. But the company is sitting on a $20 billion cash hoard, so it isn't like they are firing people because they are going bankrupt. The fact that demand has been soft and a lot of the company's employees are tied to production does feel like a signal that the softness may be prolonged and no reason to carry extra overhead costs related to labor until it's "go-go-go" again.

This confirms my recent theory that Tesla will struggle over the next year while volumes related to EVs stagnate and interest rates remain high. Until growth reignites or they unlock another source of revenue growth their valuation multiples will continue to compress and the stock is likely to keep heading towards a car company valuation multiple.

Portfolio Update

Stock Watchlist

Stocks: TSLA, LLY, ADSK, SBUX, NOW, CELH

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