Some Real Information for Real Investors

Dear subscriber,

This was a monster week for earnings, with 141 companies in the S&P 500 Index reporting.

What a relief.

Rather than chase our tails over election polls or obscure surveys, we can dig into what really matters for investors...

The cold, hard numbers that give us insights into corporate America's overall performance, financial health, and future prospects.

The good and bad of earnings comes from their subtlety. Sure, you get a lot of rich detail about what's happening in the economy... but as one company thrives and another lags, it can be hard to draw conclusions on broader trends.

This earnings season – and this week – the news has been mostly positive...

We got reports from five of the "Magnificent Seven" tech stocks this week.

Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Meta Platforms (META) all told just about the same story... They're all profitable, but didn't quite grow as much as expected. And all of them are spending billions on artificial intelligence ("AI").

Let's focus on the big winner: Google parent Alphabet (GOOGL).

Some feared that AI tools like ChatGPT would cut into Google's strength in search. But search advertising revenue climbed to $49.4 billion in the most recent quarter, up from $44 billion in the same period last year.

While the boom in AI may mean increased competition, some forget that Alphabet is a leader in this emerging tech. As CEO Sundar Pichai pointed out in the company's recent earnings call...

Recent advancements, including AI Overviews, Circle to Search, and new features in Lens, are transforming the user experience, expanding what people can search for and how they search for it. This leads to users coming to Search more often for more of their information needs, driving additional search queries.

So Alphabet's search business has been outpacing expectations.

For years, the knock on Alphabet has been that, despite its super profitable search advertising business... its other businesses have struggled to generate real profits.

That's changing.

In cloud computing, Alphabet typically comes in third place behind Amazon and Microsoft. And it's still the third-biggest player today. But the company grew cloud revenue at 35% year over year in the most recent quarter. That's better than Microsoft (which saw 20% growth) and Amazon (which saw 19% growth).

If Alphabet can keep gaining ground in cloud, it can really boost its fortunes. The cloud is a very profitable business.

Alphabet also revealed in its recent earnings report that YouTube ads bring in nearly $9 billion per quarter – and that doesn't include subscription revenue from YouTube Premium accounts.

Moreover, Alphabet's making great strides with Waymo, its self-driving-car business. The company announced that it services more than 150,000 paid autonomous rides each week.

Perhaps most interesting, Pichai pointed out, "Today, more than a quarter of all new code at Google is generated by AI, then reviewed and accepted by engineers."

(Alphabet has long been one of our favorite stocks at Stansberry Research. We have it listed as a holding in at least five of our advisory services, with gains on the stock as high as 321%.)

Moving on from tech, if you're looking for insights into the health of the consumer and the economy, you've gotten some rosy results...

• Chipotle Mexican Grill (CMG) reports, "All income cohorts, even low income, are showing positive signs of strength." However, when asked if it would be raising prices to combat inflation, CEO Scott Boatwright noted, "We're keeping a really close eye on the consumer... nothing planned today, but that's not to say we wouldn't look at a pricing action at some point in the future."
• McDonald's (MCD), too, is doing better than expected with low-income consumers. But it's taking a great deal to get them interested... Chief Financial Officer Ian Borden said, "The $5 meal deal has... continued drawing customers back into our restaurants throughout the quarter, maintaining an average check north of $10 and being profitable for our franchisees. We saw increased traction, particularly with low-income consumers, successfully growing traffic share with this group for the first time in over a year."
• Travel platform Booking Holdings (BKNG) reported strong demand for travel, particularly in Europe. As the company noted in its third-quarter earnings call, "We continue to be encouraged by the strength of our underlying business, the health of the travel industry, and the attractiveness of our products."
• Industrial-equipment maker Caterpillar (CAT) is also doing well. It reported, "Customer product utilization remains high, the number of parked trucks remains relatively low, the age of the fleet remains elevated, and our autonomous solutions continue to see strong customer acceptance."

All told, the day-to-day activity in the economy looks promising.

If you want to look at the bigger picture, out of the 324 stocks in the S&P 500 that have already reported... the average company is reporting sales growth of around 6% and earnings growth slightly above 9%.

We'll continue to monitor the remainder of this earnings season. But so far, these numbers stand up well against recent history... and suggest the economy is in good shape.

What Our Experts Are Reading and Sharing...

In one of the last polls we'll see, a massive survey of 78,247 Americans came in surprisingly positive for Vice President Kamala Harris. The Cooperative Election Study from Tufts University gives Harris a 51% to 47% lead in the popular vote (and leads in Pennsylvania, Michigan, and Wisconsin, if you want to play with the swing-state data). However, prediction markets still favor Donald Trump. And according to Bloomberg, Wall Street believes rising interest rates are a result of the markets preparing for a Trump win. Folks are calling it the "Trump trade."

The Wall Street Journal hasn't endorsed a presidential candidate since 1928 (Herbert Hoover). But yesterday, it published an article online titled "The Next President Inherits a Remarkable Economy." (The same article ran in Page 2 of today's printed edition under the headline "Gift for Next President: Sturdy Economy.") Maybe you take that as a tacit endorsement of Harris. Or maybe not. Either way, our next president has few excuses. They have everything they need to sustain job growth while slowing deficit spending.

I'm hoping this is our last batch of election-related links. But I'm not so sure. We may not have a winner by the time we publish our next issue. Many local election boards have plans to drag their feet on certifying election results. The Brookings Institution has a study on the 50 counties to watch... Arizona, Georgia, and Pennsylvania could get ugly.

New Research in The Stansberry Investor Suite...

This week, I watched the 2012 film The Lorax with my son. It's an adaptation of the classic book from Dr. Seuss, which encourages care for the environment and careful use of natural resources.

The movie version adds a villain. He's the mayor of Thneedville and also rich... because he's monopolized the supply of air. The citizens of Thneedville can't breathe unless they buy a bottle of air.

Sounds like an absurd send-up of capitalism, but it's not as much of a stretch as you think...

In today's Stansberry's Investment Advisory, editor Whitney Tilson and his team have unearthed a remarkable business selling air.

Let's start with the "remarkable business" part...

This is a company that the team expects to earn $3.3 billion in free cash flow moving forward. And over the past 20 years, the stock has been a near 10-bagger, returning more than 12% per year.

It generates these amazing returns by owning facilities that suck in air, separating that air into its component parts like nitrogen and oxygen, and selling it off to customers like food-distributor Sysco (SYY) and the Saudi Arabian oil company Aramco.

Of course, it's a little more complicated than that. But Whitney and the team explain exactly how it all works in this month's issue – including the opportunity they see for 30% to 40% gains.

Stansberry Investor Suite subscribers can read the entire report here.

If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our new special package of research – click here.

Until next week,

Matt Weinschenk
Director of Research

What do you think about This Week on Wall Street? Send any and all feedback to thisweek@stansberryresearch.com. We read every e-mail you send in.