Sometimes it's so obvious you can just pay up and pay up and pay up again. That's how investors reacted to the Zscaler (ZS) quarter, one of those barn burners with a set of numbers you wouldn't expect to see until several quarters down the road. Or the Dollar Tree (DLTR) print, where you know that pretty much any price you pay will be rewarded, it's that self-evident that the turn is at hand.
But then there are other quarters that completely elude investors and that's where the real values might be. If you don't want to pay up big, or if you think you are too late now for Zscaler or a Dollar Tree, you need to look for actual bargains created by misunderstood or ahistorical judgments, judgments founded in ignorance and rendered in fear.
That's how I feel about the quarters we got last night from Salesforce.com (CRM) , the king of the cloud, and Costco (COST) , the second largest retailer in the world, both of which were greeted with derision and a cascade of selling from the flock of disappointed souls.
These people are apostates. They don't understand what's at work. They don't understand what could happen versus what did happen and what will happen if we remember the history of these two incredible companies.
Salesforce is the most opaque because while the actual quarter was quite strong, the forecast lacked much to be desired. The company took a billion dollars in revenue and several cents worth of earnings off the docket causing that dreadful "cuts forecast" headline in the wake of the now irrelevant "better than expected" notation.
No company can withstand a "cuts forecast" header, so Salesforce.com's stock was pummeled.
But here's what people are missing. As a devotee of the stock I can recall another time, 2008, when I first studied the company and I watched co-founder and CEO Marc Benioff miss the quarter and cut the forecast. I was completely mystified. The company practically invented the cloud and was supposed to have a multi-year runway. What the heck?
Marc took me aside and explained to me that when you have a crisis like this you must show forbearance and you take your competitors head on and convince them they needed to move to the cloud right now to save money and get through this crisis. At first I was, like, "yeah, a crisis is a terrible thing to waste," some business school yarn that is a dodge, a cover-up for bad performance.
Sure enough, that's precisely what happened. Benioff power-grabbed some of the biggest clients out there, just laying the on-prem providers to waste. That's how a six dollar stock becomes a $171 stock.
Marc made it clear last night that the country's in crisis, there are companies trying to find their way and that's when you stop thinking of the near term and you go big game hunting. He urged me to remember 2007-2009.
I am not going to repeat my skepticism. I am just going to say that the stock's reaction, while understandable in the short-term, could end up being dead wrong in the long-term.
Costco? Okay, Rich Galanti, the incredibly amazing CFO, runs the conference call and he runs it without emotion and without flare, kind of like Dragnet, just the facts, ma'am. But here are the facts. Costco wants to be the company that comes out of this pandemic with a reputation of being the safest, most welcoming store on earth. That's why it spent $239 million to make its associates and customers feel less threatened when they go to the store than any other retailer on earth. I think it is worth every penny. To me it is a tremendous investment. That, plus its mask-on policy for all and its 16 feet aisles will make it so it could be in a winner take all position globally. Don't you want your stores to be a pandemic-free zone?
I sure do.
So Costco bites the bullet. It pulls out some profitable areas, hearing aids, which they dominate, glasses, food courts, until it can figure out the best way to do them. Suspends samples, our favorite moments, only to bring them back, soon, again in safer fashion and sets up for a barn burner second half.
So sure, sell these amazing franchises. Ring the register. No harm. No foul.
Me? I am going the other way, the way history tells us to go.