Tomorrow's 'Prediction X' event; Our four foundational stocks; Amazon and Berkshire Hathaway second-quarter earnings; Matija Pecotić's crazy story
1) After thousands of miles of traveling around the globe, risking my life twice, and conducting firsthand, boots-on-the-ground research, I'm revealing my next big prediction...
It's something I'm calling "Prediction X." And tomorrow, at 7 p.m. Eastern time, I'll be revealing all the details in a special event.
It's unlike anything I've ever predicted in the past... But more important, it's unpopular.
However, the "unpopular" nature of all this is exactly what could make it the most profitable prediction of my career.
The event is completely free to attend – just go to this page tomorrow at 7 p.m. Eastern time for full access. See you then!
2) When we launched our flagship newsletters, Empire Investment Report and Empire Stock Investor in April and December 2019, respectively, we recommended the same stocks – four of the greatest businesses of all time – to start with a solid foundation: tech giants Alphabet (GOOGL), Meta Platforms (META), and Amazon (AMZN), and a double-size position in Berkshire Hathaway (BRK-B).
Since then, the recommendations for these two newsletters have been quite different, as Empire Investment Report is focused on sub-$5 billion market cap companies that we think can double in one to two years, whereas Empire Stock Investor aims to identify $20 billion-plus market cap blue-chip companies whose stocks can double in three to five years with less volatility and risk.
But we've never wavered on our original four recommendations, which have handily outperformed the market – rising an average of 76% versus 54% for the S&P 500.
We don't pay much attention to their day-to-day news flow or stock price fluctuations, but every three months I like to go through their quarterly earnings in this daily e-mail.
Two weeks ago, I covered the second-quarter earnings for Alphabet and Meta, and today I'll review those of Amazon and Berkshire Hathaway...
(By the way... you can receive, for life, Empire Stock Investor, plus Herb Greenberg's Empire Real Wealth and Enrique Abeyta's Empire Elite Trader – and choose to add lifetime access to Empire Investment Report – by signing up for our Empire Junior Partnership. It's an incredible deal for access to our research... Click here to learn more.)
2) Amazon reported second-quarter earnings that trounced expectations after the close on Thursday (see earnings release and slide presentation here and here), which caused the stock to soar 8.3% on Friday.
Net sales rose a healthy 11%, but the real story was earnings, which reversed from a $2.0 billion loss in last year's second quarter to a $6.75 billion profit – nearly double what analysts were expecting – as you can see in this slide from the company's presentation:
Earnings benefitted from layoffs and other cost cuts and a rebound in Amazon's core consumer e-commerce business, which had plunged into the red last year amid a hangover from the pandemic.
While Amazon is up 66% this year, making it not as much of a bargain as it was in December, we're quite happy in Empire Investment Report and Empire Stock Investor to continue holding the stock of one of the greatest businesses of all time.
3) Berkshire reported second-quarter earnings on Saturday (earnings release and 10-Q here and here). GAAP net income soared, but this was mostly due to mark-to-market gains in the investment portfolio, which are largely meaningless over short periods of time.
But there was plenty of good news from the operations of Berkshire's wholly owned businesses, as you can see from this table from the earnings release:
Operating earnings grew a solid 6.6% in the first quarter, as strong profit growth in the insurance operations offset a 24% decline in BNSF's earnings. The former was driven by two things: a) GEICO swinging from a $487 million pre-tax loss to a $514 million gain thanks to "higher average premiums per auto policy, a reduction in advertising costs, as well as reductions in prior accident years' claims estimates"... and b) higher interest rates driving a 24% gain in investment income.
Meanwhile, this was partially offset by BNSF's earnings drop "attributable to lower overall freight volumes and higher non-fuel operating costs, offset by lower fuel costs."
My friend and former partner, Glenn Tongue, also flagged this:
Berkshire's operating earnings growth was actually much stronger than it appeared because, if you read the second footnote above, foreign currency gains in Q2 2023 were $465 million, compared to $1.1 billion in Q2 2022. If you adjust for this, year-over-year was a much more impressive 14.6%!
Turning to the cash flow statement, cash flows from operating activities were $12.4 billion during the quarter – up 46% from $8.5 billion in the same period last year.
Stock sales were $12.6 billion, offset by only $4.6 billion of purchases, meaning net stock sales were $8.0 billion – up from $3.8 billion of net stock purchases in last year's second quarter.
Lastly, let's look at share repurchases...
Buffett started buying back shares in 2018 and really ramped it up in 2020 and 2021. He slowed buybacks to a trickle in early 2022 as Berkshire's share price hit an all-time high (and briefly reached our estimate of intrinsic value)... but as the stock (and markets) pulled back, he resumed buying in size in late 2022 and the first quarter of this year, before pulling back to as you can see here:
Tomorrow, I'll share my update estimate of Berkshire Hathaway's intrinsic value... Stay tuned!
4) On Saturday someone told me that my friend and former Empire analyst Matija Pecotić (see picture of us below) had just defeated Ilya Ivashka of Belarus in the qualifiers for the Canadian Open, which is a big-time Masters 1000 tournament leading up to the U.S. Open – featuring Alcaraz, Rune, Auger-Aliassime, Berrettini, Fritz, Medvedev, Norrie, Ruud, Tiafoe, Rublev, Tsitsipas, and Sinner.
In my February 15 e-mail, I shared the story of how Matija walked into the Delray Beach Open and beat Jack Sock (Real Estate Professional Matija Pecotić Upsets Jack Sock at 2023 Delray Beach Open), but Saturday's win is another level, as Ivashka is currently ranked world No. 113 and was as high as No. 40 a year ago.
I reached out to Matija to congratulate him, and he replied:
You want a good story?
I flew to Toronto late last night with a one percent chance of getting into the master series.
I didn't get into the qualifying tournament at the signing yesterday nor at the signing this morning, much like at Delray Beach.
During the day, one guy pulled out, but there was one guy ahead of me on the list, so he got in.
At that point, everyone who was supposed to play was here and warming up for their matches.
I was literally eating an ice cream and loading my bags into the car to go to the airport, WHEN...
A guy pulled out nine minutes before the start of his match!
My phone started ringing and I was called to the supervisor's room.
I got drawn to play Ivashka from Belarus.
My adrenaline was so high that I won the first nine points of the match, hitting winners and aces, and took the first set 6-2.
The second set was a little tougher, but I won the tie break 7-3.
It was my first Masters win ever.
I'm playing Italian Matteo Arnaldi (world No. 65) tomorrow at 2 p.m. for a place in the main draw.
Quite a day!
He later added:
All this with a full-time job.
Like I said, I should have started working earlier in my tennis career. 🤣
Alas, Matija lost to Arnaldi 6-4, 6-4 yesterday, but nevertheless it's a heck of a story and accomplishment!
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.