Video summary

10 Stocks Just Crashed — Only 1 Is a Buy

Main summary

Key takeaways

Finance

Market / Macro Context & Performance Backdrop

  • Late July market behavior: Not a broad market collapse; instead, rotation driven by company growth, cash flow, and expectations.
  • Notable weekly movers (large drawdowns):
    • Qualcomm (QCOM): down >14%
    • KLA (KLAC): down double digits (~-13% over 5 days)
    • Micron (MU): down double digits (~-11% over 5 days; -29% over 1 month)
    • Apple (AAPL): down ~8% (later noted >7% after earnings)
    • Caterpillar (CAT): punished (near “almost as severely”)
    • L3Harris (LHX): punished (similar magnitude)
  • Counter-moves around earnings: Microsoft (MSFT) and Amazon (AMZN) surged; Apple (AAPL) and Meta (META) fell.
  • S&P 500 performance (YTD):
    • Average S&P 500 stock up ~12%
    • Cap-weighted S&P 500 up ~8.7%
  • Financing conditions worsening: the 10-year Treasury yield rose from ~4.6% to ~4.75% in 3 days, pressuring valuations of expensive growth stocks.
  • Bull case on timing: Tom Lee frames the market as a “coiled spring,” suggesting August could rebound strongly (index target mentioned: ~7,800).
  • Caution / seasonality & dispersion:
    • August and September are historically the weakest months
    • Not every “fallen stock” rebounds—some declines reflect multiple risk or deteriorating fundamentals

Stock Ranking Framework (Step-by-Step Methodology)

The presenter ranks 10 recent losers using four factors:

  1. Why each stock fell (e.g., earnings/guidance miss, growth deterioration, cyclical trough concerns, valuation reset)
  2. Forward growth (forward revenue/EPS/EBIT/FCF growth assumptions)
  3. Historical valuation context (e.g., forward P/E vs 5-year average; implied premiums)
  4. Expectation embedded in a DCF-style model (“disc counting cash flow”)

Then they order stocks from least attractive to most attractive, with only one described as a buy this month.

Explicit Valuation / Risk Tools & Recurring Metrics

  • Forward multiples: P/E, EV/EBITDA, dividend yield
  • DCF / blended intrinsic value comparisons vs the current price
  • Margin of safety and reverse DCF (implied growth/cash-flow path the market requires)
  • Key theme: valuation requires exceptional execution—especially for high-multiple or highly cyclical companies, which have less margin for error

Tickers / Instruments / Sectors Mentioned

Equities

AAPL, KLAC, MU, MSFT, AMZN, META, CAT, LHX, MO (Altria), VRT (Vertiv), UPS, QCOM, NVO (Novo Nordisk)

Index / Macro Rates

  • S&P 500
  • 10-year Treasury yield

Sectors / Themes

  • Semiconductors / AI trade unwind
  • Defense / national security
  • Data center power & cooling
  • Industrials
  • Tobacco
  • Logistics
  • Pharmaceuticals/obesity & cardiovascular drugs

Key Recommendations (and Why) — “Only 1 Is a Buy”

The video claims 9 stocks should be avoided or waited on, and only #1 (Novo Nordisk) is a buy in August.

#10 — Apple (AAPL): Avoid / Wait (Still Overvalued)

  • After earnings: down >7% (context: “lost around 8%” in the week)
  • Guidance issue: component constraints; revenue guided 9–11% vs Street expected ~12%
  • Valuation still high:
    • Trades > $300
    • Around 33x forward earnings
    • Dividend yield ~0.35% vs normal ~0.51%
  • Intrinsic value / valuation gap (model outputs):
    • “Blue tunnel” fair value indicated: small undervaluation signal (as described)
    • Base valuation: ~$241 vs market ~308 (described as ~28% premium)
    • Reverse DCF: requires ~14% free cash flow compounding to justify the price (about double the 10-year cash flow growth rate)
  • Conclusion: “Great business, not a great investment at this price.”

#9 — KLA (KLAC): Avoid / Wait (Priced for Near-Excellence)

  • Down: ~-13% (5 days); >50% higher YTD; near lower end of 52-week range; ~$83 52-week low
  • Growth strong:
    • Forward revenue ~20%
    • Forward EBITDA/EBIT ~22–23%
    • Forward diluted EPS ~25%
  • Earnings quality: revenue/earnings beat; momentum into 2027
  • Valuation:
    • ~33x forward earnings
    • Peak earlier noted 60–65
    • 5-year average <23
  • DCF / margin of safety: base DCF around $182 vs price around $182, but framed as requiring ~50% premium for fair value
  • Reverse DCF / required execution: market implies ~21.6% annual cash flow growth
  • Conclusion: excellent company, but margin for error is small

#8 — Caterpillar (CAT): Near Fair Value (Avoid Due to Earnings Downside Risk)

  • Down from peak: peak >$1,000, now ~$800+; still +40% YTD
  • Catalyst risk: earnings before market open tomorrow; “AI infrastructure premium” questioned
  • Fundamentals mixed:
    • Revenue +12% YoY, forward revenue ~9–10%
    • EBIT down 3% YoY
    • Levered free cash flow down 45%
  • Valuation:
    • ~32x forward earnings vs 5-year avg ~17
    • Dividend yield 0.8% vs avg 1.8%
  • Valuation outputs:
    • Blended fair value ~$809 vs market ~$800 → “fairly valued”
    • Multiples model ~$812
    • Dividend method ~$932
    • Cash-flow model ~$682
  • Reverse DCF: needs ~14% cash-flow growth; latest annual free cash flow “essentially flat”
  • Conclusion: not a short; but not enough upside vs earnings downside pre-results

#7 — Altria (MO): Avoid / Wait (Income Not as Compelling as History)

  • Yield headline: ~6.2%, but below 5-year avg ~7.8%
  • Down: -5% over 5 days, -7% over 1 month; post-earnings volatility
  • Why it fell: missed profit estimates; weaker Marlboro volumes; on-nicotine pouch underperformed
  • Growth:
    • Forward revenue <1%
    • Forward EPS ~4.6%
    • Estimated 3–5 year EPS ~4%
  • Valuation: ~12x forward earnings vs historical ~10x
  • Intrinsic value:
    • Blended ~$66 vs price ~$68 (slight over fair)
    • DCF ~$73
  • Conclusion: likely returns driven mainly by the dividend; not the “decline created the most compelling total return” winner

#6 — Vertiv (VRT): Avoid / Wait (Growth, but Fragile Valuation Discipline)

  • Theme: data center power/cooling tied to AI capex boom
  • YTD / drawdown: +49% YTD, but ~-18% over last 5 days on results miss
  • Quarter: sales ~$3.27B vs expected ~$3.38B
  • Growth (exceptional):
    • Revenue +26% YoY
    • Forward growth >31%
    • Forward EBITDA >40%
    • Forward EPS ~47%
    • Free cash flow per share projected ~+40%
  • Valuation stretched:
    • ~36x forward earnings
    • ~27x EV/EBITDA
    • Forward EV/sales ~3x vs sector 2.22
  • Upside vs DCF:
    • Street implied upside ~40% to $338
    • Base DCF ~$260 vs current (described ~7% margin of safety)
  • Reverse DCF: needs just below 14% cash-flow growth; history is short and influenced by boom
  • Macro driver cited (Mohamed El-Erian): rising real rates compress the price investors pay for future growth
  • Conclusion: real opportunity, but valuation buffer too thin given funding/rates

#5 — UPS: Avoid / Wait (Turnaround; Cash/Dividend Coverage Tight)

  • Down: nearly -10% despite beating quarterly expectations and raising outlook
  • Recent performance:
    • Quarterly revenue ~$23B
    • Adjusted EPS ~$1.76 beat
    • Full-year revenue guidance raised to ~$91.2B
  • Skepticism due to deterioration:
    • Revenue and EBIT/earnings down YoY (EBIT ~-7%, diluted EPS -20% YoY)
  • Forward outlook:
    • Revenue ~+1.4%
    • EBIT ~+2.6%
    • Forward diluted EPS ~+1.5%
  • Valuation / yield:
    • Trades below normal P/E (~13.3x vs 5-year avg 15.4)
    • Yield ~6.3% (above historical)
  • Intrinsic value / margin of safety:
    • Blended ~$112 vs price; ~7% margin of safety (excluding dividend)
  • Model disagreements:
    • DCF ~$117
    • Dividend method ~$102
    • “Historical multiple” method ~$140
  • Key risk: dividend coverage
    • Free cash flow 2025: ~$5.5B
    • Dividend payments: ~$5.4B
    • Leaves little cushion
  • Conclusion: turnaround bet—valuation/yield attractive, but the cash-flow/dividend equation is too tight for a single clear buy

#4 — Micron (MU): Avoid / Wait (Cyclical; Requires Peak-Like Cash Flows)

  • Massive prior run: about +190% YTD even after decline
  • Drawdowns: -11% over 5 days; -29% over 1 month
  • Why down: memory/semis volatility; profit taking; higher rates; China competition; potential future supply
  • But growth metrics are extreme:
    • Revenue +167% YoY
    • Forward revenue >100%
    • EBITDA +332%
    • Operating growth +676%
    • EPS growth >700%
    • Forward EPS growth ~400%
  • Valuation risk: low multiples may coincide with cyclical peak earnings
  • DCF: low-case DCF ~$829 vs price ~$799 → only ~4% margin of safety
  • Core assumption: 2025 free cash flow ~$3.7B, but model requires near step-change for 2026–27; thereafter only ~5% growth
  • Reverse DCF: cited as ~4.3% cash-flow growth (conservative given base-year step-up)
  • Risk: Chinese rival increasing capacity; question whether shortage is structural
  • Conclusion: momentum is real, but too dependent on “peak-like” cash flows for top conviction

#3 — L3Harris (LHX): Avoid / Wait (Fair-to-Undervalued, but Not Best Balance)

  • Down: -9% over last 5 days after results
  • Results: beat revenue and profit; raised full-year guidance
  • Growth profile:
    • Forward EPS growth ~20%
    • Long-term EPS ~21–22
    • Forward revenue ~6%
    • Free cash flow per share ~14%
  • Backlog support: defense backlog highlighted
  • Catalyst risk/value unlock: planned IPO of L3Harris missile solutions delayed due to market conditions
  • Valuation: ~22x forward earnings vs 5-year avg ~17 (implied overvaluation risk signal exists)
  • Valuation outputs:
    • Blended just below $300
    • DCF ~$372
    • Multiple method ~247
    • Dividend method ~$265
  • Why it still ranks high: if execution matches base growth, appears meaningfully undervalued; Wall Street upside mentioned ~32%
  • Conclusion: interesting undervaluation, but not the cleanest #1

#2 — Qualcomm (QCOM): Avoid / Wait (Largest Gap; Earnings Deterioration in the Near Term)

  • Down: -14% YTD; ~52-week lows; -13% over last 5 days after outlook disappointment
  • Fundamental weakness:
    • Revenue growth ~2% YoY
    • Forward growth ~4.7%
    • EBITDA/EBIT/EPS declined YoY; forward EBIT negative
  • Margin/earnings pressure: memory costs; Apple modem share decline faster
  • Valuation: ~16x forward earnings (slightly above 5-year ~14)
  • DCF: base intrinsic value ~$238 vs current (described as >38% headline margin of safety)
    • Even 0% growth: ~$184
    • At 4% growth: ~$238
    • At 8% growth: >$300
  • Reverse DCF: negative → implies the market is pricing sustained cash-flow decline
  • Conclusion: potentially highest-return challenger, but near-term earnings reset is tied to the reason it fell (Apple modem dynamics, higher costs)

#1 — Novo Nordisk (NVO): BUY in August (Best Valuation vs Expectations/Risk)

  • Down: -7.5% YTD, ~-5% over 5 days; ~-10% after results
  • Catalyst / specific trigger: failed ZEUS trial
    • Drug reduced inflammatory markers but failed to reduce major cardiovascular events
    • Led to a non-cash impairment charge
    • Trial population included cardiovascular disease + chronic kidney disease + inflammation
  • Growth reset in forecasts:
    • Forward revenue ~4.6%
    • Forward EPS growth ~1.3%
  • Valuation improved sharply:
    • Trades at ~14x forward earnings vs ~30x 5-year average
    • Dividend yield near 4% vs 5-year ~1.4%
  • DCF / margin of safety:
    • Intrinsic value ~$60 vs current price → ~21% margin of safety
    • DCF sensitivity:
      • 4% FCF growth: ~at current price
      • 8%: ~$60
      • 12%: ~$75
    • Market-implied long-term cash flow growth: ~3.9%
  • Timing caution: earnings are on Wednesday; presenter does not buy a full position immediately before the announcement
  • Main risks: obesity market competition, pricing pressure, or weaker demand driving further estimate cuts
  • Why it’s #1: failed trial is pipeline-related and does not alter 2026 operating profit outlook; valuation now reflects less-than-effortless growth, creating the best risk-adjusted upside among the group

Disclosures / Cautions

  • No explicit “not financial advice” language appears in the provided subtitles.
  • Clear caution: do not buy a full position immediately before Novo’s earnings (short-term risk).

Presenters / Sources Mentioned

  • Tom Lee: “coiled spring” market rebound thesis; target mentioned ~7,800
  • Mohamed El-Erian: explanation tied to rising real rates and financing-cost pressure

Original video