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Catalyst watch for the week of July 16. Seeking Alpha Managing News Editor Kim Khan on what investors can expect when the retail sales report is released. (00:24) Kim gives a brief earnings preview of IBM, Tesla (TSLA) and Netflix (NFLX). (01:33) Hot topic: Hollywood actors join writers on the picket lines (03:01). How should investors view major studios and streamers? (05:17)
Julie Morgan: Kim next week we’re starting off with retail sales, right?
Kim Khan: We also have a lot of housing data as well. But I think the focus will be on the retail sales because it has such a reflection on the consumer. And I think it’s going to be a different week for economic indicators because after this really cool CPI number that we had, everybody is kind of convinced the Fed’s going to be one and done.
So I think people are going to want to see some strength. They’re going to want to see some resilience from the consumer. So if retail sales come in higher than expected, you won’t get the usual knee jerk reaction of, oh my gosh, the Fed is going to suddenly hike another 25 basis points.
You’re going to see people say, okay, good, we’ve got this. We’ve got a soft landing still on track, so we’ll see about that. It’s a little early to get consensus estimates, but I think that basically the consumer has shown resilience and will still be able to find pockets of strength in different categories.
Although we did see a lot of things fall in the CPI such as airline fares and food prices and shelter costs. So maybe there’s more money in the pocket.
JM: Now let’s talk about earnings. So we look at next week, more than 300 companies…a lot… are due to report earnings next week. This includes more banks like Bank of America (BAC) and PNC. Lockheed Martin (LMT) is also reporting. Netflix (NFLX), IBM, Tesla (TSLA), Taiwan Semi (TSM). The list goes on and on.
KK: Yeah, it’s 300 companies and it’s one of the lighter weeks. If you look to the two weeks ahead, it’s going to be an overwhelming kind of tsunami. But let’s just focus on the ones we got here.
I did the smart thing and reached out to the sector editors of Seeking Alpha who know these areas the best, and they picked out three stocks that people should be looking at.
IBM in the tech sector, you want to look at free cash flow because it’s ultra important to investors. Given its 5% dividend yield.
For Tesla, of course, we’re going to look at what lower model prices had an impact on automotive margins and will full year deliveries guidance be adjusted? And are earnings strong enough to sustain this rally? We’ve seen it’s up 150% year to date.
And then moving over to Netflix, my favorite area, the streaming area. It has some positive momentum and the focus has kind of shifted, according to our editor Jason Aycock, to new revenue streams away from subscriber growth. So what you’re going to want to listen to is maybe the conference call and not just look at the numbers because they’re going to talk a lot about how paid password sharing has been going. And the word is it’s going to be significantly better than expected.
JM: All right, so let’s talk a little bit more about your favorite area. Let’s talk about Hollywood. We know the writers’ strike has been going on since May, so for more than two months now. But there’s another strike that seems to be looming. I’ve seen videos and photos of actors standing in solidarity with writers, but now it looks like actors are about to join the picket lines officially.
KK: Yeah, it will be the first time in 60 years that the actors and the screenwriters would be on strike at the same time. It would be a kind of body blow to any new content coming out of the industry.
The Actors Guild did vote overwhelmingly to support a strike. That strike at the time of recording is yet to happen, but it looks like it will.
I think that people should pay attention to one of my favorite movies, The Player, directed by Robert Altman. It’s a satire on Hollywood that pretty much explains everything that’s going on. If you haven’t seen it, definitely go out and see it. But there’s one line in the movie. All these producers are spitballing around in a meeting, and one of them says, oh, you could just take anything out of the newspaper and make a movie out of it. The script will write itself, slap a happy ending on it, it’s done. And one of them says, I just think it’s just an interesting thing to take the writer out of the creative process. If we could just get rid of these actors or directors, maybe we’re onto something.
And I think that’s kind of how the actors and the writers feel.
They feel that they’re not getting what they want from the producers. And the big sticking point is AI. It seems like the producers really don’t want to budge on the ability to use AI and something they’ve seen.
Like with Warner Brothers Discovery (WBD) cutting a lot of the scripted programs and pushing more for reality shows, which are cheaper and easier to produce and AI driven, I think they feel like, okay, we can just have AI read a bunch of scripts and then churn out the perfect script for this genre or whatever.
And maybe if with the actors joining, that’s a problem, but maybe they think, okay, just do animation or something like that, and we could get rid of the actors.
If you really wanted to replace people in the creative industry, in Hollywood with AI, I think you would start with the producers, because you could just feed all the scripts into AI and say, which one’s to green light. Which is what they do. So why not try from the top down?
JM: Tell me, how should an investor look at this? When we look at companies, we look at Disney (DIS), for one. We look at Netflix (NFLX). How should investors in these companies view this?
KK: I think that it’s how you feel about executives versus workforce in a company could be a different investing philosophy. A lot of people like to get into companies that just slash costs, especially activist investors that can work and that can be very helpful to your portfolio.
You can be more patient, though, and kind of say, oh, we’re going to go with what? This has worked before. If you’re talking about digitally, if you’re talking about Time Warner, Disney is going to come up with something. If it’s not parks, it’s going to come up with the next “Frozen.” Just give it time. The next Pixar idea.
With Time Warner, HBO is going to reinvent television, which it pretty much did, giving legacy premium television to people and almost like supplanting box office receipts. In that way, maybe you trust in that. So do you trust in the people that trust in their employees? Or do you trust in the people that think employees aren’t doing the best?
JM: Well, coming up Monday, of course, we’ll have a poll in the Wall Street breakfast newsletter, our daily one page news summary. So you should definitely look out for that. Kim, thanks so much. I appreciate you joining me today, as usual.
KK: Thanks, Julie. It was great.
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