What if earnings don't matter? What if there are stocks that are impervious to the slings and arrows of the market? I used to think such a statement was inconceivable. Even in this crazy market, earnings matter, don't they?
In reality, it depends. There are thousands of companies of which earnings do matter. But then there are a handful of stocks of which they just don't seem to mean a thing. And, get this, I have the list of the impervious ones, call them the "Magnificent Seven." These are seven companies of which the buyers and investors don't seem to care how well the companies are doing, they want to own the stocks anyway. It's almost as if these stocks are home teams in some giant league of stocks and they needed to be supported no matter what. I get that. I support the Eagles in rain or shine -- it's been doing a lot of raining of late -- but I would never confuse them for a stock.
That can be said about the Magnificent Seven, the stocks that seem to have detached themselves from all metrics, except the metric of wonder. In each case, there is a thesis that is so powerful that it overwhelms any sort of valuation technique. What matters is every day is a buying opportunity, whether the stock is down or up and there is no better opportunity than to buy then after disappointing earnings. I don't want to prejudice you, but I think that all seven names bear the imprint of the younger generation of investors. They have a thesis, they find a stock that fits the thesis and then they never quit buying it, long after the traditional buyers have turned sellers based on valuation.
Without further ado, and in reverse alphabetical order, so the most important stock rises to the top, let me give you the first ever list of the Magnificent Seven:
The first is Netflix (NFLX) . I saw a pathetic story Monday about how New York is opening movie theaters as long as they are not in New York City. Fifty people per showing, max. I yawned. Who cares? Who wants that risk? Why not just stay at home and watch Netflix? The amazing thing about this magnificent one is the universality of it. No one is going to the movies around the globe. The thesis, therefore, must be true, regardless of what the company reports. So if the stock goes down, you buy it anyway. Makes sense, except that you could say the same thing any time since the pandemic began. That kind of logic means nothing to these buyers.
The second is Peloton (PTON) . Forget that these expensive contraptions, are, in the end, bikes. Peloton's become a cult name, the one stock that you can buy instead of going to a gym or a spin class, both of which are endangered species. I can't tell you how many times people have bragged to me that they knew to get a Peloton the moment the pandemic broke, as if they are visionaries. Just amazing prophets of exercise class doom. It's true that its software makes it an ecosystem and that the back-orders are immense and the new products enticing. What matters, though, is that Peloton's become the de facto way to play the athletic pandemic angle.
Third is Paypal (PYPL) . Millennials started buying things on Paypal when my generation could only dream of having a Macy's (M) credit card -- where many of us got our first line of credit. Many never ever switched to a card. They like Paypal and they love Venmo, so they can shuttle money back and forth with each other with emojes. There is an important ethos to Paypal, one that is propagated by its CEO Daniel H. Schulman, which is the democratization of money. Paypal is a worldwide bank without the hassle. It's a truly remarkable ecosystem that has changed the world of finance. In an odd confluence, younger stock buyers are joined by older institutional investors who know they have to have own some banks, but don't want the credit risk. Voila, there is Paypal. Here's a company that has either missed the rosiest of projections or lowered estimates many times and it has not meant anything. It's the thesis in banking and it isn't going to let earnings trifle with it.
Fourth is Roku (ROKU) , and this one's hilarious, because the love for it is well beyond reason. Remember this is what I call thesis investing and the thesis among the younger investors is that there's nothing to watch on television that's worth watching, except for maybe sports -- and now not even that -- and they despise commercials so much that they would rather just cut the cord. The disdain for commercials is palpable. They are hated like they are physically harmful. Roku changes all that. They get to watch non-advertising TV whenever they want, and that's all they want. I didn't realize the power of this until one of my daughters cut my own cord and replaced it with Roku. I put the cord back. She cut it again. That's dedication. The same dedication that the younger cohort has to the way to play the proud saving of money on 500 channels they will never watch.
Fifth? Square (SQ) . Here's an oddity. I just don't find this one so special up here. But "up here" means nothing to these buyers. The more "up here," the better. Square stands for the empowerment of the little guy. Sure the placeholder could be Etsy (ETSY) or Shopify (SHOP) , but those need real earnings and must trounce the estimates. Square? It doesn't seem to matter what this Point of Sale with small business banking does. The stock buyers are far more worshipful than the actual users of the product, and I would have thought that the decline in merchants owing to Covid would have hit these guys. Instead you have another non-bank alternative to the Bank of Americas (BAC) and Wells Fargos (WFC) of the world. Like Paypal, Square is considered one of the good guys, if you can really personify a point of sales system.
I will not pretend to predict how high the stock of Tesla (TSLA) can go. Four hundred billion seems absurd. But so did 300 billion or even 200 billion for that matter. Here's what you might be missing, though. The buyers and owners know that Elon Musk will get this company to grow into the market cap. I don't know how they know that. They just know it and they won't be dissuaded. I joined them eons ago, or at least eons of points ago, and I am not departing from the stock, if only because they aren't departing from the stock to give you some classic circular reasoning. The really incredible thing about this company is, much to the chagrin of short-sellers and "really smart guys," the owners do not think that anyone will ever build a better electric vehicle mousetrap. Their messianic zeal knows no bounds, even ones that involve gravity.
Finally there is Zoom (ZM) . Talk about last but not least, how about last but the most? Zoom has insane growth, the likes of which I have never seen. Total meeting minutes on Zoom are 30-times what they were last year. The company doesn't even have low single digit penetration of its opportunity and it is just beginning to find new ways to monetize. Most important, every single time you hear that cases are on the rise, this cohort, whoever this cohort is, buys this stock. Zoom's taking the place of Xerox (XRX) as a technical verb. It's the greatest phenomenon I have seen since the personal computer. Maybe greater given that the world became flooded with personal computers by different companies, while Zoom just keeps pulling away from the competition.
Now, nothing lasts forever, including the love affair with the magnificent seven. Remember, though, earnings themselves are an abstraction for a thesis stock and disappointments are just more reasons for buying.
