Famed short seller Jim Chanos' bearish view on Meta Platforms; Eli Lilly's stock drops on new weight-loss-pill study results; My favorite new gadget
1) Longtime readers know I've been bullish on social media titan Meta Platforms (META) for years.
I wrote about it most recently on July 31, when I analyzed its exceptional second-quarter earnings report. That day, the stock hit a new all-time high.
I continue to think Meta is one of the greatest businesses of all time. But to be a successful investor, it's critical to keep an open mind to disconfirming information as well...
So with great interest, I read this recent interview with famed short seller Jim Chanos, where he shares his bearish view on Meta. (He's not short the stock... yet.)
The interview was done by William Cohan, one of the best business journalists in the world. It's behind a paywall, but here's an excerpt:
[Chanos] questioned whether Meta's depreciation schedule for its massive program of capital spending – primarily on Nvidia A.I. chips – was overstating the company's net income, and thus, arguendo, inflating its market valuation. In other words, Chanos posited, Meta's stock could be overdue for a serious correction...
... if an asset will lose its usefulness in two to three years, as could be the case with Nvidia A.I. chips, depreciating those assets over a longer period of time would mean that expenses on the income statement may be too low – and profits, therefore, too high.
Cohan then links to Chanos' argument posted on the social platform X. In one of his replies, Chanos asserts that Meta's "financial statements may not be accurately reflecting the material change in the business model" anymore.
Yesterday, I shared this bear case with an old friend who knows the company better than just about anyone...
He has been an entrepreneur, executive, and investor in the tech sector for the past three decades. And he still owns shares from when he invested in Meta when it was a private company.
Here are his thoughts:
This is one of the oldest negative arguments about META. And look at how the stock has performed...
The multiple on the stock can't go down much more because, if you exclude its spending on the metaverse, it's lower than the average company in the S&P 500.
I think the reason this is never a factor is because the tech has a longer useful life than accountant wonks think it does. Also, these same wonks fail to properly understand the holistic benefits of these investments and the growth in revenue they bring, which swamps the cost.
At the end of the day, Meta is one of the highest-margin businesses ever created, operating at a mind-boggling scale (it services almost the entire population of the world daily), and it has many levers to pull to create value. Depreciation is not going to bring it down.
Another friend who runs a tech-focused hedge fund, Angelo Martorell, added:
Chanos' argument is absurd. Who cares if depreciation expense lags capital expenditure when the multiple is so cheap? I think you're getting the core business at 10x 2026 earnings.
Then you have [CEO Mark] Zuckerberg who beat TikTok and Snap (SNAP) and went from nerd to cool. He just wins...
Do you have any idea what will happen if he wins AI? META could be a five-bagger from here and become the world's most valuable company.
Thank you, my friends!
Needless to say, I remain bullish on Meta...
2) Eli Lilly (LLY) is one of the leading makers of the miraculous weight-loss drugs I've written about many times.
The company reported new study results of its experimental orforglipron pill, which is expected to become a blockbuster.
Despite positive results, they were below analysts' expectations. As a result, the stock dropped more than 14% yesterday, as covered by the Wall Street Journal. Excerpt:
The pill helped people lose up to about 12% of their body weight after more than a year of treatment...
Yet the latest clinical-trial results may dent some of that enthusiasm. The magnitude of weight loss fell short of what some analysts were predicting: 13% to 15% or more.
Lilly also reported second-quarter earnings yesterday. (You can read the press release here and investor presentation here.)
Revenue soared 38% to $15.6 billion. And adjusted earnings per share came in at $6.31, up 61% and crushing analysts' estimates. It also raised full-year guidance.
But these stellar numbers weren't enough to offset investor disappointment. And the stock hit an 18-month low yesterday, now down 34% from its all-time high a year ago.
I've never recommended the stock because it has been too expensive, trading at 35 or 40 times current-year estimates.
But after the latest sell-off, it's down to 28.4 times this year's estimates and only 21.3 times next year's. That's roughly the same multiple as the average S&P 500 Index company.
And Lilly's business is far above average. As this other article in today's WSJ notes, orforglipron is still likely to be a massive winner. Excerpt:
Lilly's pill could still be a commercial breakthrough, not because it is more potent, but because it is more accessible. A once-daily oral drug that requires no refrigeration and is easier to manufacture could dramatically expand the market. It could be prescribed more readily by primary-care doctors, shipped like any other medication and used in global regions where injectables remain impractical. It might also attract patients who avoid needles or those with milder obesity looking for a simpler, longer-term maintenance option.
Critically, the pill could be less expensive as well:
Lilly hasn't disclosed what orforglipron will cost, but investors widely expect it to be cheaper than the company's injectable drug, Zepbound.
On a call with analysts Thursday, Lilly Chief Executive Dave Ricks hinted at more accessible pricing, describing the pill as a medicine that could treat a larger population suffering from "less complicated obesity"...
A pill for weight loss could also open up the market beyond just the U.S.
I think Lilly looks compelling here, so I'll be discussing it with my team at Stansberry's Investment Advisory. If we ever decide to add the stock to our model portfolio, subscribers will be the first to know. (If you aren't an Investment Advisory subscriber yet, you can find out how to become one right here.)
3) Can you guess what I'm wearing around my neck in this photo?
They might look like headphones... But it's actually my favorite new gadget, a neck fan that blows air on my face and head.
I'm currently trying out two highly rated versions. The one I'm wearing above is only $26.99. The other is a little smaller and lighter, and it has a cooling strip. But it's a whopping $199.99.
I highly recommend getting a fan like this. It has been a total lifesaver during this beastly hot summer!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.