The Four Deepest Value Stocks In The Market

Welcome back everyone. Today on the Joseph Carlson Show, just yesterday we had Jerome Powell, the Fed Chair, talk about the resetting of the economy. In many ways, these widespread tariff talks and the many different things Trump is doing have turned the economic outlook on its head. There's a resetting of growth potential, of risks to the economy, of interest rate forecasts, and so on and so forth. We'll be going through Jerome Powell's expectations of the economy in 2025. Now we also have an overview of four of the biggest value stocks in the market today. Out of all the many companies to choose from, these are the four that I think are potential buys based on their valuations. We also have news of an earnings report, Darden Restaurants, they're similar to Texas Roadhouse owning Olive Garden. We'll be looking at an overview of how the food industry is doing. And we have Dan Ives, trying to do damage control for Elon Musk. The brand of Tesla is in question. It's in jeopardy right now. And Dan Ives believes that Elon Musk should step away from Doge and try to preserve the brand. We'll be looking at his argument and the interview in this episode. So we have a ton to get into in this episode. Before we jump into the four value stocks and the individual analysis on them, we have to take a look at what Jerome Powell said yesterday, because this does have implications on the economy. The Federal Reserve did not change interest rates this week, and investors shouldn't get too comfortable with the projections for the two rate cuts later this year. So officially right now, the Federal Reserve has penciled in two rate cuts, but those are up in the air, and it's anyone's guess as to how many rate cuts there's actually going to be. The biggest issue for the Fed in accurately projecting rate cuts is there's so many variables and unknowns going on right now. They say that there's been significant changes announced and expected in federal policy on trade, immigration, and fiscal spending mean rate expectations could change later this year. Basically, the Trump administration has flipped everything on its head, and the Fed doesn't know what to make of it. Jerome Powell says it's really hard to know how this is going to work out. I don't know anyone that has a lot of confidence in their forecasts. The Fed says that they'll remain data dependent, and they're not on pre-set courses. While these individual forecasts are always subject to uncertainty, as I noted, uncertainty today is unusually elevated, and the course of these projections are not a committee plan or decision. Policy is not on a pre-set course. So over and over again in this meeting, Jerome Powell is emphasizing that he doesn't know how things are going to go, and they're going to look at the data as things play out. Now he was also asked on the economy today, and so far he says the economy looks robust. It looks like it's going to continue to be strong. In terms of whether the Fed increases interest rates or lowers interest rates, there could be two possible outcomes. One of which is that all these global tariffs in a tariff war spurs inflation, in which case they'd need to increase interest rates. The other outcome is that inflation remains rather steady, unemployment goes up, the economy becomes weaker, and they lower interest rates as a result. We don't know which of those two outcomes is going to happen. When he was asked specifically if tariffs cause inflation, he said, quote, it can be the case that it's appropriate sometimes to look through inflation if it's going to go away quickly without action by us, if it's transitory. He used that same tainted word, transitory. The one that he used to describe the inflation way back in 2021, which went on a little bit longer than expected. But he said that in the case of tariffs, there can be short term inflation that works its way through the system without any interaction from the Fed. So in terms of the Fed meeting yesterday, we don't have any clear answers. And even the Fed themselves admit that they don't know how things are going to play out. They are data dependent, and they're going to wait. And in terms of the two rate cuts that are currently penciled in, he emphasized again So that leaves us back at square one, where there's a lot of uncertainty in the market. Now uncertainty in the market can be looked at as a negative thing because it brings down stock prices. Investors overall love certainty. They love predictability. They don't like the unknown. So right now the stock market is being discounted. It's going down because we're investing in an unknown environment. But even looking at the headlines may give you the false impression that things are worse than they actually are. For example, if we just look at the year to date of the S&P 500, it's down 3%, just a bit over 3%. That's after being up 20% last year and 20% the year before. And this is actually normal. What's happening in the stock market and in your portfolios today is normal. It's no abnormality for stocks to go down, even to go down quite a bit. What's abnormal is stocks going up every single day without ever going down, where stocks are going up so fast, without any regard to the fundamentals, that they become grossly overvalued. That's not only abnormal, but it's dangerous for investors. If the market continues to race up without any regard to the fundamentals of companies, that creates a massive bubble, and we've been there before throughout history. We've already gone through multiple bubbles. And I'd prefer the stock market to take a breather, to let companies' fundamentals catch up to the stock price, instead of stock prices just pushing up higher and higher based on positive sentiment. So while investors become concerned that stock prices fall, as long as your companies are fundamentally sound, as long as they're growing free cash flow per share, the fundamentals will not only catch up to the stock price, but they'll go ahead of it, and they'll push the stock price higher over time. For an investor in quality companies that have growing intrinsic value every year, your only requirement is to wait patiently. And that's what I'm doing with my companies. Now having said that, there's four companies that I believe are currently value stocks that I want to highlight. Now, keep in mind, I don't own any of these four companies. So I'm not promoting any stock I own. These are ones that I'm not invested in. But I've identified as companies that I think are rather high quality, but they're being treated as though they're not high quality at all. They're being treated as though they're extremely uncertain stocks. The first one here is Adobe. Now Adobe historically has had many, many qualities of a very high quality company. For example, if we switch over to the trailing 12 months, we look at the total revenue over time, this is what it looks like. $22 billion in revenue in the trailing 12 months. Even when looking at total performance obligation, we have continued growth. 12% year over year. Adobe is also doing a strategy of buying back a ton of shares with their free cash that they're generating right now. For example, you can see the massive spike up in share count purchases since 2023. Let's zoom into just the past 10 years. These pink bars represent common stock repurchases. In Q4 of 2023, on a trailing 12 month basis, they repurchased $4.56 billion. In the trailing 12 months from Q1, which was the last one they reported, they repurchased $10.7 billion. So they've over doubled the amount they're repurchasing in share count. Adobe is one of the companies where they're doing exactly what investors want companies to do. The repurchasing of shares is causing the share's outstanding count to fall quickly. In fact, in the last year, it fell almost 4%. The free cash flow is likewise growing really quickly, even without share repurchases. When we factor those in on a free cash flow per share basis, it's growing around 18% over the past 5 years. So this is very fast free cash flow per share growth, which I believe is the best metrics or proxy for intrinsic value creation. Adobe today trades at an 18.8 forward P.E. ratio. So right there, along with Google, this company trades without high expectations for earnings this year. Even when we look at this on a free cash flow yield basis, it still looks cheap. In fact, it almost looks even cheaper on a cash flow basis than an earnings basis. When we look at this stock today, it trades at one of the lowest valuations it ever has. For example, here is the trailing P.E. ratio of Adobe over the past year. When we zoom out to the past 5 years, again looking at the trailing P.E. ratio, you can see it right here. It is at the lowest valuation it's been since September of 2022. And looking at this at a free cash flow yield shows a very similar picture. Remember that free cash flow yield being higher means the company is cheaper. And right now it's at one of the highest free cash flow yields it's ever been, aside from September of 2022. When investors purchased the company in September of 2022, they were buying the absolute dip, the very bottom of the company. And that is the precise valuation it trades at today. So why is Adobe so cheap? The reason why is because it faces a lot of potential risks. Canva is an image creation tool very similar to Photoshop, and they're taking customers away from Adobe. Another problem for Adobe is the storyline of artificial intelligence. Investors don't know whether or not this helps Adobe or hurts Adobe, but it seems that overall investors have concluded that generative AI is too big of a risk for Adobe, that ultimately it's going to hurt them. And this is a question that we don't quite know the answer. Adobe leadership is, of course, certain that artificial intelligence will aid their business, not hurt it. And the next step is agents, which is they can now, whether you're trying to optimize a marketing campaign, whether you're trying to make sure that the website is performing well for customers, you know, how do you roll up all of this functionality into agents? And the way I like to describe agents are at the end of the day, agents understand how to do reasoning. They're performing tasks to achieve a business outcome. And so we announced a series of agents that will work, you know, to help marketers accomplish their tasks faster. Agentic AI is the next step, and you've heard every major large software company talk about agents from Salesforce to ServiceNow to Adobe. But the jury's still out of how this will affect these companies overall. So I revisit Adobe today because I think it's an interesting one to look at. I think that investors are more likely to make money today than lose money. I believe the risk reward is to the upside, but right now there's still some uncertainties in the stock and the fundamentals that keep me out of it. Next up, we have Nike. This is a company that's come back on the radar as it's had a terrible performance over the past couple of years. In fact, Nike has been underperforming for some time. While the stock is flat year to date, if we zoom out to one year, it's down 27% over the five-year period. It's only up 17%. And then over a full 10 years, an entire decade, Nike has provided a 44% return to investors. At one point, Nike was trading high at around $170 per share, and it's came all the way down to $72. And in terms of the historical valuation of Nike, if we look at this on a five-year timeline, the trailing PE once again shows that this company is the cheapest it's been over the past five years. Overall, Nike's an excellent company. It trades at a historically low valuation. If investors wanted to buy in this company, they would be buying a recovery play, a turnaround company, one that you're hoping the new CEO, with all of his experience at the company, can start guiding this one on the right path. And I believe Nike is certainly not the worst bet in the market. It's a high quality brand, and it has ample upside if management can execute. Another potential turnaround play is PayPal. This stock has an incredibly low valuation. Looking at the forward PE ratio of PayPal, it trades currently at a price-to-earnings of 14. That is close to a commodity multiple. A commodity multiple means that investors are pricing the stock as though it neither creates value nor destroys it. It's just coasting along. On 2026's earnings, it's trading at a 12.4. On a free cash flow yield basis, PayPal trades at a 9.8% yield. PayPal's down 18% in 2025. Over the trailing year, it's only up 6.7%. Over the past five years, PayPal's down 17%. Now, PayPal was one of the companies that was a Cathie Wood ARK investment type of company. It went up like crazy to $300 per share. It was grossly overvalued at the time. PayPal's share price has been completely deflated. All the excess is out of the stock. Even if we go to the 10-year timeline, it's only up 92% in the decade. When we look at the P-E ratio of PayPal over time, it trades not at the very lowest, but close to the lowest it has over the past five years. When we look at this on a free cash flow yield basis, remember that higher is cheaper. PayPal also trades at one of the highest free cash flow yields it has over the past five years. PayPal's facing off against other companies, like Toast. This is a payment company that's also a CRM for restaurants. These highly specialized companies are taking market share from companies like PayPal and Square. Quantitatively, it looks like a buy. But qualitatively, it still looks a little too risky for me. This is one that I put firmly in the too-difficult pile. Now, finally, we get to the next value play in the market, which I still believe is Uber. This is one of the cheapest companies in the market based on its historical valuation. Now, the Ford P-E ratio looks a little high, but remember that Uber's growing its earnings per share rapidly. Uber's historical valuation is a little tricky, but over the past year, this company has only gotten cheaper. The stock prices stayed roughly the same over the past year, but the earnings have grown rapidly, which means the P-E ratio has come down. The stock traded at a 100 P-E ratio last year, and it's come down into the teens. As they've grown their free cash flow dramatically, the free cash flow yield has also grown, from being around 2% to 3% to now being around 4% to 5%. Uber's cheaper on earnings. It's cheaper on cash flow. Any metric you look at the business, it continues to grow. So unless things rapidly change with the onset of robo-taxis, this stock is a buy today. There is a chance, and I believe it's a small chance, that robo-taxis will eat into a large market share of Uber over time, but it's increasingly starting to look like there's going to be multiple players in the robo-taxi business, and Uber will remain the largest aggregator. That's an enviable position to be in. So Uber's a company that I believe is still a buy today. Between the four value stocks, Adobe, Nike, PayPal, and Uber, I would first consider Uber. Then Adobe. Then Nike. And then PayPal. Now let's go ahead and move on to some news. First of all, we get to news that Darden Restaurants, the owner of Olive Garden, as well as a couple other brands, reported sales, and overall they're a little bit disappointing. Earnings per share beat expectations by one penny, but then revenue came in under expectations, $3.16 billion versus $3.21 expected. Darden's same store sales rose only 0.7%. So not even 1%, analysts had expected same store sales to increase by 1.7%. So they are not growing in their same store sales anywhere to the extent they should be. Even with low expectations, they came in under that. Management of Darden blamed it on the weather, and this is something that a lot of restaurant companies are doing right now. Executives blamed the winter's low temperatures and snowstorms for the disappointing quarter ending on February 23rd. When excluding weather, same store sales across all four of Darden's segments grew during the quarter, and only consumers making less than $50,000 were spending less at casual dining restaurants. Now, a lot of people look at this and they think that this is just an excuse. Management is making stuff up when they're blaming the weather, because it does sound like a flimsy excuse. The weather does impact people's willingness to go out to eat. It's something proven in the data, and you can prove it by looking at the sales in states where the weather wasn't a problem, Verse states that it was. Every time the weather is much colder than expected, and colder than it was in previous years, restaurants earn less money. So I don't view blaming weather as a flimsy excuse. I think it's a really relevant piece of data. If the weather improves for these companies, so should their sales. Management also mentioned with their commentary on all the economic polling, that even if consumers say they're feeling less optimistic, we haven't seen a huge correlation between that and dining out. So I think as long as incomes are going up and outpacing inflation, I think they're likely going to keep spending. I think this is a fine report for Darden. It's not too bad, and considering the weather, the same challenges that Texas Roadhouse faced, overall I think this is a decent report. Now finally we get to this interview with Dan Ives. He's been a Tesla bull for years. He's incredibly optimistic and bullish about Tesla, but he's now saying that Elon Musk needs to take a step back from politics because the reputational damage and brand issues it's causing Tesla are just too great. There is violence and vandalism happening to Tesla on an increasingly large scale. There are reports all over Vegas that multiple Teslas have been burned to the ground. So these are no longer just people spray painting Nazi symbols or swastikas on Teslas. They're now torching them. Some people are also shooting into Tesla dealerships, breaking the glass, throwing rocks through the windows, torching entire buildings to the ground. In some cases, they've burned down entire charging stations. So this isn't just boycotting or simply choosing not to buy a product or even speaking negatively about the product online. It's now transitioned into the real world with physical violence and vandalism. There's also continued reports that Tesla's becoming unpopular across Europe. Many people saying, especially in places like Germany, that they're no longer considering buying a Tesla vehicle. Sales continue to slump all across Europe, specifically because of Elon Musk's commentary about their politics. Tesla's stock price is now down to $233 per share, and this is a company that was trading above $400 not too long ago. When we look at the stock price year to date, it's down 38%. Now looking at it on a longer timescale, it looks fine, up 35% over the trailing year. Over the past five years, of course, we have the huge rise in 2020 with Tesla stock, but it's certainly the case that Elon Musk's politics is weighing on Tesla stock and the brand. And so Dan Ives is coming from the perspective of protecting Tesla's brand value and stock. And this starts off by highlighting increasing calls for violence against Tesla owners and destruction of their property. While Tesla owners say an online map decorated with an image of a Molotov cocktail includes personal information about them, such as residential addresses, raising fears that activists opposed to Elon Musk could target them for vandalism. Musk condemning the website in a post on X saying, quote, encouraging destruction of the Teslas throughout the country is extreme domestic terrorism. Our next guest out with a new note outlining the two things he says Musk needs to do to change the narrative, Wedbush's Dan Ives here at Post 9 to discuss. He's got a buy rating on Tesla, $550 price target. Is one of them leave the Department of Government Efficiency to come back and focus on Tesla? I mean, look, I believe, you know, a few weeks ago it felt contained from all of our survey work and we talked about on the show. I think it's turned into what I'll call a brand crisis and really a brand crisis tornado. And I think for Musk, he needs to balance this in terms of being Tesla's CEO and Doge. And I believe taking a step back from Doge is is crucial to the name. And, you know, some will argue we've been through it before and I've been there from the beginning. He says quite openly that Elon Musk should take a step back from Doge and focus more on Tesla. And the overarching theme of what Dan Ives continues to argue is that Elon Musk is basically a part-time CEO and a part-time political activist. The next point that Dan Ives argues is that Tesla has become a political symbol and becoming a political symbol is not good for business. But to that point, I think the political symbol is the issue, because to some extent, when you look at the frustration that you're hearing from Tesla shareholders, they own the stock not to get into this political sort of crossfire lightning rod. Now, there's a lot of statements being made here, a lot of arguments from Dan Ives. Some of it I agree with, but some of it I think is completely wrong. Dan Ives is correct in saying that in almost every case, when a stock becomes a political symbol, it's not good for business. Remember when the CEOs of Disney, Bob Chaypek and Bob Iger, had a dispute with Ron DeSantis, the governor of Florida. This was an extremely public and politicized dispute between these two parties. And it wasn't good for business. It resulted in people shopping less at Disney, visiting the parks less frequently, some people swearing off their products for good. It didn't result in violence or vandalism to any large degree, but it was not good for business. Typically, when CEOs get involved in politics, unless it is part of a specific marketing routine, it's typically not good for business. The owners of the company, the shareholders, are paying the executives to perform a job, to run the company as efficiently and profitably as possible. They're not paying them to espouse their own personal views. And that is the situation with 90% of publicly traded companies. CEOs are accountable to the board of executives, which are accountable to the shareholders. Shareholders are the ultimate authority. If politics doesn't help the stock go up, then it's going contrary to the goals of the shareholder. And that's the case with 99% of publicly traded companies. But with Elon Musk, like most things, the situation is a little different. First of all, Elon Musk is not just some simple CEO for Tesla. He is the single largest shareholder. He's one that largely ran the company from the beginning and built all the value in it that it has today. He's not just some transitional plugged in CEO hired by the shareholders. So the structure in and of itself and the relationship of Elon Musk to Tesla is a little bit different. It's more akin to Mark Zuckerberg and Meta, where he has such a large controlling stake of the company that he in and of himself is the largest shareholder. Now, with this incredibly unique relationship and the huge amount of ownership and influence that Elon Musk has over Tesla, of course, he has a huge degree of influence over the company and the brand. And this has always been the case. Part of the reason that Tesla investors will say they bought the stock is because of Elon Musk. It's always cited as a bull case. Why do you own Tesla stock? Well, the owner of it is the most successful entrepreneur in the world. That's why I own it. That's what Tesla investors will tell you. And Elon Musk has given ample reasons for caution to investors to caution themselves that there is key man risk here, that even though Elon Musk and his rhetoric is an asset today, it may become a liability tomorrow. Just a year ago, Elon Musk literally told advertisers to go F themselves openly in an interview with The New York Times. Someone that does that, especially a CEO that does that in such a public setting, is obviously a potential brand risk to the company that they own. They're willing to do that flippantly, offhand, and repeat it over and over again in the same interview. There is some potential brand risk here. Nobody can look at Elon Musk and look at Tesla and say, this caught me off guard. I had no clue that Elon Musk could say crazy things. Obviously, that was the case. Obviously, that's always been the case. In fact, six months ago, Elon Musk made it incredibly obvious that he was getting involved in politics when he campaigned and donated to the now current president. He was literally giving stump speeches for President Trump. So this isn't something where Tesla investors are caught off guard, where they go, wow, I had no clue that Elon Musk would be involved in politics. And Tesla investors, like Dan Ives, were completely fine with Elon Musk being involved in politics when the stock was going up, when it rose up 40 percent in only a couple of months to $460 per share. There was no problems with the politics at that point. Only when Tesla stock starts to trend down does his political involvement become a problem. Elon Musk's involvement in politics has always been a risk for Tesla stock. It's never good when your stock becomes a political symbol. It's never good when all politicians on one side are saying buy the stock and politicians on the other side are celebrating the stock going down. Elon Musk placed Tesla squarely in the middle of this political debate, and that's not a good place for a company to be. Now, Elon Musk could step down from Doge, as Dan Ives suggests. He could pull back and focus solely on Tesla. He could try to protect the brand value of Tesla at this point or try to repair what damage has been done. But that also puts him in a difficult position. Elon Musk is so involved in this at this point that if he steps down now because of vandals, it'll make him look weak or spineless. Additionally, if Elon Musk decides to step down now and say he's not focusing on Doge and cutting down on government spending, then he will have, in a sense, proven the vandals correct and given them more influence and power. The vandals will have learned that they can terrorize Tesla and Tesla owners. They can burn cars to the ground. They can spray paint Tesla buildings. They can shoot holes through the walls. They can burn down charging stations. And as a result, they get exactly what they want. That's the message that Elon Musk would be sending to them, giving them a substantial amount of power and influence over his company. That any time in the future he does something that they don't like, they would have learned that they can vandalize and terrorize his customers until he backs down. And I don't know if that's the message that Elon Musk wants to paint, that these people have this much influence over his decisions. Either way, right now, Tesla is in a difficult spot, not only because of the fundamental reasons with car sales already being a difficult industry, but the addition of all this scrutiny from the political sides is another weighing factor on the company. Over time, I think the intensity of the scrutiny on Tesla and the vandalism will go down over time. The fact that these cars have cameras all around them means that a lot of these vandals are going to get caught. So we'll see how this plays out over the next two or three years. But right now, I doubt that Elon Musk is going to step down from Doge. That's going to be it for this episode. See you in the next one.